Berlin:

Germany is set to hold the crucial federal election on Sunday (February 23) to elect its next chancellor. The snap polls were called by chancellor Olaf Scholz when his coalition government fell apart at the end of last year, the results of which will shape the future of Europe’s most influential nation and the European Union.

In the race for top leader is an incumbent chancellor seeking a second term, the opposition leader, the current vice chancellor and — for the first time — a popular leader of a far-right party. The elections are receiving an unusual level of interest from onlookers outside the country, including the world’s richest man Elon Musk, who caused an outcry in Germany by throwing his weight behind the far-right Alternative Alice Weidel.

A Look At Top Contenders 

Olaf Scholz: The 66-year-old centre-left Social Democrat has been Germany’s chancellor since December 2021. Seeking a second term, Scholz has a wealth of government experience, having previously served as Hamburg’s mayor and as German labour and finance minister. 

As chancellor, Scholz launched an effort to modernize Germany’s military after Russia’s invasion of Ukraine and made Germany Ukraine’s second-biggest weapons supplier. His government prevented an energy crunch and tried to counter high inflation. But his three-party coalition became notorious for infighting and collapsed in November as it argued over how to revitalize the economy — Europe’s biggest, which has shrunk for the past two years.

Friedrich Merz: Germany’s 69-year-old opposition leader has emerged as the front-runner in the election campaign, with his centre-right Union bloc leading polls. Merz became the leader of his Christian Democratic Union party after longtime Chancellor Angela Merkel — a former rival — stepped down in 2021. Since then, he has taken the party in a more conservative direction. 

During the election campaign, Merz has made curbing irregular migration a central issue. However, he lacks experience in government. He joined the European Parliament in 1989 before becoming a lawmaker in Germany five years later. He took a break from active politics for several years after 2009, practising as a lawyer and heading the supervisory board of investment manager BlackRock’s German branch.

Robert Habeck: The 55-year-old Habeck is the candidate of the environmentalist Greens. He’s also Germany’s current vice chancellor and the economy and climate minister, with responsibility for energy issues. As co-leader of the Greens from 2018 to 2022, he presided over a rise in the party’s popularity, but in 2021 he stepped aside to let Annalena Baerbock — now Germany’s foreign minister — make the party’s first run for the chancellor’s job. 

Habeck’s record as a minister has drawn mixed reviews, particularly a plan his ministry drew up to replace fossil-fuel heating systems with greener alternatives that deepened divisions in the government.

Alice Weidel: The 46-year-old Weidel is making the first bid of the far-right, anti-immigration Alternative for Germany, or AfD, for the country’s top job. An economist by training, Weidel joined the party shortly after it was founded in 2013. She has been co-leader of her party’s parliamentary group since the party first won seats in the national legislature in 2017. 

Weidel has been a co-leader of the party itself since 2022, along with Tino Chrupalla. In December, she was nominated as the candidate for chancellor — though other parties say they won’t work with the AfD, so she has no realistic path to the top job at present.

When Will The Results Come?

It is likely to take several days after February 23 to confirm the final results of the election. However, based on the exit polls, fairly reliable results are likely to be out by Sunday evening, but there may still be some uncertainty as the counting of votes by post (a trend which is on the rise) takes time. The performance of smaller parties will also factor in result timing as Germany has a norm of electing a coalition government. 

Even after the full results are out, forming a new government will, most likely, take some time as talks between parties on coalition will start only after the results. The coalition might take several months to put a government together. It depends on the numbers at play and the political arithmetic – essentially the extent to which different combinations of parties agree or disagree on various policy positions.

Why Germany Forms Coalition Governments?

The proportional voting system and increased political fracturing in Germany make it extremely difficult for any one party to form a government alone and a coalition needs to be formed comprising parties that together hold more than 50 per cent of the seats in the Bundestag — the national parliament.

It is also partly political culture in Germany to prefer stable majorities as minority governments are considered to be too weak and unstable. 

Until the early 1980s, there were usually three parties (conservative, social democrats and liberals) in Parliament. However, currently, the country has seven parties in the Bundestag.

Parties In Fray 

Germany has two centrist, “big-tent” parties: Scholz’s centre-left Social Democrats (SPD) and the opposition conservatives, an alliance of the Christian Democrats (CDU) and their Bavarian sister party, the Christian Social Union (CSU).

Both have lost support in recent years, with smaller parties such as the Greens and far-right Alternative for Germany (AfD) gaining ground.

The SPD, conservatives, Greens and AfD are all fielding candidates for chancellor.

Also running are the pro-market Free Democrats (FDP), the far-left Linke and the leftist Sahra Wagenknecht Alliance (BSW), who are all at risk of missing the 5 per cent threshold to make it into parliament, according to opinion polls.

Polls

The conservatives have been leading nationwide polls for more than two years and are at 30 per cent, according to the latest survey published by Forsa Institute on February 16, followed by the AfD at 20 per cent.

Scholz’s SPD, with 16 per cent, has dropped to third from the first place it achieved in the 2021 election. It is followed by the Greens on 13 per cent and Linke on 7 per cent. The FDP is polling at 5 per cent, with the BSW at 4 per cent, according to the latest poll.

Analysts say polls can shift quickly as voters are less loyal to parties than they once were. In the 2021 election campaign, the conservatives went from frontrunner to runner-up within a few months.

Berlin:

German Chancellor Olaf Scholz said Wednesday that it was “wrong and dangerous” of US President Donald Trump to call Ukrainian leader Volodymyr Zelensky a “dictator”.

“What is correct is that Volodymyr Zelensky is the elected head of state of Ukraine,” Scholz told the Spiegel news site.

Earlier on Wednesday Trump called Zelensky “a dictator without elections”.

Zelensky’s five-year term ended last year but Ukrainian law does not require elections during wartime.

Scholz condemned any attempt “to deny President Zelensky democratic legitimacy”.

“The fact that proper elections can’t be held in the middle of the war is reflected in the Ukrainian constitution and electoral law,” he said.

Foreign Minister Annalena Baerbock also hit back at Trump’s comments, branding them “absurd”.

“If you look at the real world instead of just firing off a tweet, then you know who in Europe has to live in the conditions of a dictatorship: people in Russia, people in Belarus,” Baerbock told broadcaster ZDF.

Earlier Berlin had also pushed back against Trump’s claim that Kyiv had “started” the fighting.

“No one but Putin started or wanted this war in the heart of Europe,” Baerbock said in a statement, adding that “we are working with all our might to further strengthen Ukraine”.

She said “we are at an existential waypoint for security and peace in Europe” and that the goal was “achieving lasting peace for Ukraine — safe and protected from future Russian aggression”.

Baerbock said that any “false peace … would only give Russia a respite for new military campaigns”.

Regarding the fast-moving events since Trump spoke directly with Putin about ending the conflict, she said that “we must not allow ourselves to be confused” and “keep a cool head”.

Downplaying Europe’s role on Ukraine “only plays into the hands” of Russia, she said.

“I therefore advocate acting confidently towards the US administration.”

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

Berlin:

German Chancellor Olaf Scholz on Tuesday sharply criticized Elon Musk’s backing of the right-wing parties in the European Union, calling it “really disgusting” and said it was hindering democracy in the bloc.

The U.S. billionaire and ally of U.S. President Donald Trump has multiple times attacked the chancellor and his government, calling on him to resign and saying that the far-right Alternative for Germany (AfD) party is the country’s only saviour.

“What is new is that he is intervening in favour of right-wing politicians all over Europe. And this is really disgusting and it is not good for the democratic development in all the European Union,” Scholz responded in English to a journalist’s question after a campaign event in Berlin.

Most recently, Musk made a surprise appearance at the AfD’s campaign event via video link and said the Germans should not be guilty of their parents’ sins and should be proud of their culture.

“I am absolutely critical about what Elon Musk said about the history of Germany,” Scholz said, adding that his country will continue to bear responsibility for the things that have been done by Germans in the past.

This week the world is remembering the liberation of the Nazi concentration camp Auschwitz, Scholz added. “This killing of so many Jews and other people in Europe done by Germans in the past, this is a historic responsibility”.

Germany is thankful to the U.S. for freeing it from Nazis and helping it to become a democracy again, Scholz said, adding, “and this is why I am so angry about Elon Musk intervening for the far-right”.

Last week, the world’s richest person caused uproar after he made a gesture that drew online comparisons to a Nazi salute during Trump’s inauguration festivities.

The anti-immigration, anti-Islam AfD is labelled as right-wing extremist by German security services but is currently polling second in nationwide surveys before the upcoming snap election in the country, where the debate on immigration magnified after a string of violent attacks by foreign-born suspects.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

Berlin:

German Chancellor Olaf Scholz said Saturday that the principle of sovereign borders must be protected, days after US President-elect Donald Trump refused to rule out force to seize Greenland.

Speaking to a congress of his Social Democrat party ahead of a general election next month, Scholz said: “The principle of the inviolability of borders applies to every country, regardless of whether it’s in the East or the West,” referring also to Russia’s invasion of Ukraine.

“This is a principle that every state must abide by, whether it’s a small state or a big and powerful one,” he said.

“No country is the backyard of another, no country should have to fear its bigger neighbours. That is a central part of what we call Western values.”

Trump sparked alarm bells on Tuesday when he refused to rule out military intervention over the Panama Canal and Greenland, both of which he has said he wants the United States to control.

That prompted Scholz to tell a hastily called press conference on Wednesday that Trump had caused “notable incomprehension” among EU leaders.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

German President Frank-Walter Steinmeier announces the decision to dissolve the German Bundestag and schedule a new election for February 23 next year, in Berlin, Friday, Dec. 27, 2024.
| Photo Credit: AP

German President Frank-Walter Steinmeier on Friday (December 27, 2024) ordered parliament dissolved and set new elections for Feb. 23 in the wake of the collapse of Chancellor Olaf Scholz’s governing coalition.

Mr. Scholz lost a confidence vote on Dec. 16 and leads a minority government after his unpopular and notoriously rancorous three-party coalition collapsed on Nov. 6 when he fired his Finance Minister in a dispute over how to revitalize Germany’s stagnant economy.

Editorial | Persistent instability: On German politics

Leaders of several major parties then agreed that a parliamentary election should be held on Feb. 23, seven months earlier than originally planned.

Since the post-World War II constitution doesn’t allow the Bundestag to dissolve itself, it was up to Mr. Steinmeier to decide whether to dissolve parliament and call an election. He had 21 days to make that decision. Once parliament is dissolved, the election must be held within 60 days.

In practice, the campaign is already well underway. Polls show Mr. Scholz’s party trailing the conservative opposition Union bloc led by Friedrich Merz. Vice Chancellor Robert Habeck of the environmentalist Greens, the remaining partner in Mr. Scholz’s government, is also bidding for the top job — though his party is further back. If recent polls hold up, the likely next government would be led by Merz as chancellor in coalition with at least one other party.

Key issues include immigration, how to get the sluggish economy going, and how best to aid Ukraine in its struggle against Russia.

Why is Germany headed for snap polls? | Explained

The populist, anti-immigration Alternative for Germany, or AfD, which is polling strongly, has nominated Alice Weidel as its candidate for chancellor but has no chance of taking the job because other parties refuse to work with it.

Germany’s electoral system traditionally produces coalitions, and polls show no party anywhere near an absolute majority on its own. The election is expected to be followed by weeks of negotiations to form a new government.

It’s only the fourth time that the Bundestag has been dissolved ahead of schedule under Germany’s post-World War II constitution. It happened under Chancellor Willy Brandt in 1972, Helmut Kohl in 1982 and Gerhard Schroeder in 2005. Mr. Schroeder used the confidence vote to engineer an early election narrowly won by centre-right challenger Angela Merkel.

Berlin, Germany:

Germany’s centre-left Chancellor Olaf Scholz lost a confidence vote on Monday after weeks of turmoil, setting Europe’s biggest economy on the path to early elections on February 23.

The Bundestag vote, which Scholz had expected to lose, allows President Frank-Walter Steinmeier to dissolve the legislature and formally order an election.

The crucial vote followed a fiery debate in which political rivals traded angry recriminations in a foretaste of the election campaign to come.

Embattled Scholz, 66, lags badly in the polls behind conservative opposition leader Friedrich Merz of the Christian Democratic Union (CDU) of ex-chancellor Angela Merkel.

After over three years at the helm, Scholz was plunged into crisis when his unruly three-party coalition collapsed on November 6, the day Donald Trump won re-election to the White House.

The political turbulence has hit Germany as it struggles to revive a stuttering economy hammered by high energy prices and tough competition from China.

Berlin also faces major geopolitical challenges as it confronts Russia over the Ukraine war and as Trump’s looming return heightens uncertainty over future NATO and trade ties.

Those threats were at the centre of a heated debate between Scholz, Merz and other party leaders ahead of the vote in the lower house, in which 207 MPs backed Scholz against 394 who did not, with 116 abstentions.

After Scholz outlined his plans for massive spending on security, business and social welfare, Merz demanded to know why he had not taken those steps in the past, asking: “Were you on another planet?”

‘Deplorable state’

Scholz argued that his government had boosted spending on the armed forces which previous CDU-led governments had left “in a deplorable state”.

“It is high time to invest powerfully and decisively in Germany,” Scholz said, warning about Russia’s war in Ukraine that “a highly armed nuclear power is waging war in Europe just two hours’ flight from here”.

But Merz fired back that Scholz had left the country in “one of the biggest economic crises of the postwar era”.

“You had your chance, but you did not use it … You, Mr. Scholz, do not deserve confidence”, charged Merz.

Merz, a former corporate lawyer who has never held a government leadership post, lambasted the motley alliance of the chancellor’s Social Democrats (SPD), the left-leaning Greens and the liberal Free Democrats (FDP).

Coalition bickering over fiscal and economic issues came to a head when Scholz fired his rebellious FDP finance minister Christian Lindner on November 6.

Scholz on Monday again lashed out at Lindner for the “weeks-long sabotage” that imploded the alliance and damaged “the reputation of democracy” itself.

The departure of Lindner’s FDP left Scholz running a minority government with the Greens that has been limping along, unable to pass major bills or a new budget.

‘Plagued by doubt’

German politics in the post-war era was long staid, stable and dominated by the two big-tent parties, the CDU-CSU alliance and the SPD, with the small FDP often playing kingmaker.

The Greens emerged in the 1980s, but the political landscape has been further fragmented by the rise of the far-right Alternative for Germany (AfD), a shock for a country whose dark World War II history had long made right-wing extremist parties taboo.

The AfD has grown in the past decade from a eurosceptic fringe party into a major political force when it protested against Merkel’s open-door policy to migrants, and now has around 18 percent voter support.

While other parties have committed to a “firewall” of non-cooperation with the AfD, some have borrowed from its anti-immigration rhetoric.

After the fall of Syrian president Bashar al-Assad, some CDU lawmakers were quick to demand that the around one million Syrian refugees in Germany return to their home country.

The election comes at a time “the German model is in crisis,” said Berlin-based political scientist Claire Demesmay, of Sciences Po Paris.

Germany’s prosperity “was built on cheap energy imported from Russia, on a security policy outsourced to the USA, and on exports and subcontracting to China”, she told AFP.

Demesmay said the country was now in a sweeping process of reorientation which is “feeding fears within society that are reflected on the political level”.

“We can see a political discourse that is more tense than a few years ago. We have a Germany plagued by doubt.”
 

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

German Chancellor Olaf Scholz. File
| Photo Credit: Reuters

Chancellor Olaf Scholz will call on Germany’s parliament on Monday (December 16, 2024) to declare it has no confidence in him, taking the first formal step towards securing early elections following his government’s collapse.

The departure last month of the neoliberal Free Democrats from the three-way coalition left Mr. Scholz’s Social Democrats and the Greens governing without a parliamentary majority just when Germany faces its deepest economic crisis in a generation.

Rules drawn up to prevent the series of short-lived and unstable governments that played an important role in helping the Nazis rise to power in the 1930s mean that the path to new elections is long and largely controlled by the chancellor.

“If legislators follow the path I am recommending, I will suggest to the President that he dissolve parliament,” Mr. Scholz told reporters on Wednesday (December 12, 2024) after requesting the motion.

President Frank-Walter Steinmeier has said he will act accordingly after Monday’s (December 16, 2024) vote and agreed with parliamentary parties on Feb. 23 as the date for early elections.

Assuming the no-confidence vote passes, Mr. Scholz and his ministers will remain in office in an acting capacity until a new government is formed, which could take months if coalition negotiations prove lengthy.

Mr. Scholz has outlined a list of measures that could pass with opposition support during that period, including 11 billion euros ($11.55 billion) of tax cuts and an increase in child benefits already agreed on by former coalition partners.

Measures to better protect the Constitutional Court from the machinations of a future populist or anti-democratic government, to cut energy prices and to extend a popular subsidised transport ticket are also under discussion.

The outcome of the vote is not certain, with Mr. Scholz’s SPD likely to vote that they have confidence in their Chancellor, while opposition conservatives, far ahead in the polls, and the Free Democrats expected not to.

The far-right Alternative for Germany, with whom all other parties refuse to work, could surprise legislators by voting that they do have confidence in Mr. Scholz.

If both the SPD and the Greens also back Mr. Scholz, that would leave him in the awkward position of remaining in office with the support of a party that he rejects as anti-democratic. In that case, most observers expect he would resign, which itself would trigger elections.

To avoid that scenario, many legislators expect the Greens to abstain from the vote. ($1 = 0.9522 euros)

Ukraine’s President Volodymyr Zelenskyy, right, and German Chancellor Olaf Scholz attend a ceremony honouring fallen soldiers near the People’s Memorial of National Memory in Kyiv, Ukraine, Monday, December 2, 2024
| Photo Credit: AP

German Chancellor Olaf Scholz visited Ukraine for the first time in more than 2.5 years on Monday (December 2, 2024), just weeks after he was criticized by Ukrainian President Volodymyr Zelenskyy for having a phone call with Russian President Vladimir Putin.

That call came at a time of widespread speculation about what the new administration of President-elect Donald Trump will mean for Ukraine as the incoming president has promised to end the conflict. In a major shift, Mr. Zelenskyy signalled Friday (November 29, 2024) that an offer of NATO membership to territory under Kyiv’s control could end “the hot stage of the war” in Ukraine.

Mr. Scholz’s visit comes ahead of an early German election expected in February. As the campaign gets underway, Mr. Scholz has pointed to Germany’s status as Ukraine’s second-biggest weapons supplier while also highlighting his “prudence” in working to prevent the war escalating and refusing to deliver Taurus long-range cruise missiles.

Mr. Scholz has been cautious about talk of fast-tracking NATO membership for Ukraine. In recent months, he has emphasized the importance of finding a path to peace, while stressing that it must not be chosen over Ukraine’s head.

Mr. Scholz said that in his meeting with Mr. Zelenskyy, he will announce further military deliveries this month totalling 650 million euros.

“I would like to make clear here on the ground that Germany will remain Ukraine’s strongest supporter in Europe,” he said.

Despite that, Scholz was criticized by Mr. Zelenskyy in November for speaking to Mr. Putin in what appeared to be the first conversation with the sitting leader of a major Western power in nearly two years. In that call, Mr. Scholz urged Mr. Putin to be open to negotiations with Ukraine but the Russian leader said any peace deal should acknowledge Russia’s territorial gains and security demands, including that Kyiv renounce joining NATO.

Mr. Zelenskyy suggested the call to Putin risked opening “a Pandora’s box” and would only serve to make Russia less isolated. He travelled to Berlin in October to meet Scholz to drum up support for his “victory plan” to end the war in Ukraine on a tour of European capitals.

The plan included a suggestion that Ukraine receive a formal invitation to join NATO and a request that Kyiv be given permission to use long-range Western missiles to strike at military targets inside Russia.

Some Western nations granted permission for Kyiv to carry out long-range strikes with their weapons in November. Following the decision, Mr, Putin said Russia launched a strike on Ukraine with an unstoppable intermediate range ballistic missile dubbed the Oreshnik. It marked the first time that such a missile was used in the war or in any other conflict.

Berlin:

German Chancellor Olaf Scholz on Friday urged Russian President Vladimir Putin to engage in peace talks with Ukraine, in the first call between the leaders in almost two years.

In the call, Scholz “condemned Russia’s war of aggression against Ukraine and called on President Putin to end it and withdraw troops”, the chancellor’s spokesman Steffen Hebestreit said.

The German leader “urged Russia to show willingness to negotiate with Ukraine with the aim of achieving a just and lasting peace”, Hebestreit added in a statement.

Scholz also stressed “Germany’s unwavering determination to support Ukraine in its fight against Russian aggression for as long as necessary”.

The call comes at a crucial juncture in the war. Ukrainian troops are coming under pressure and the election of Donald Trump in the United States has cast doubt over Washington’s continued support for Kyiv.

The Kremlin said Putin had a “detailed and frank exchange of views over the situation in Ukraine” with Scholz, with the call initiated by the German side.

Putin told Scholz that any agreement to end the war in Ukraine “should take into account the security interests of the Russian Federation” the Kremlin added.

An accord should “proceed from the new territorial realities and, most importantly, address the root causes of the conflict”.

Ukraine contact

Before picking up the phone to Putin, Scholz spoke with Ukrainian President Volodymyr Zelensky, Scholz’s spokesman said.

The German and Ukrainian leaders spoke “beforehand and will do so again after the conversation with the Russian president”, the spokesman said.

The call between Scholz and Putin was the first time the two have been in contact since December 2022.

During the hour-long call, Scholz “particularly condemned the Russian air strikes against civilian infrastructure in Ukraine”, said a German government source.

“He made it clear that sending North Korean soldiers to Russia for combat missions against Ukraine would lead to a serious escalation and expansion of the conflict,” the source added.

Berlin would keep NATO and European Union allies informed over the talks, while the German and Russian leaders had “agreed to remain in contact”.

Scholz’s December 2022 call with Putin was the last known phone call between the Kremlin chief and the leader of a major Western country.

Putin has spoken to few NATO and Western leaders since 2022, when the EU and the US imposed massive sanctions on Russia for launching its shock Ukraine offensive.

Within the NATO bloc, Putin maintains contact with Hungarian Prime Minister Viktor Orban — who is critical of Western policy on Russia — and with Turkish President Recep Tayyip Erdogan.

Trump factor

Ukraine is bracing for the most difficult winter so far in the war, which began in February 2022 when Russia launched its full-scale invasion.

Much of Ukraine’s energy infrastructure has been destroyed by Russian bombardments and Kyiv’s troops are increasingly on the back foot.

Germany has been one of Ukraine’s biggest military supporters, second only to the United States in the aid it has sent to Kyiv.

But the election of Trump, who criticised aid to Ukraine on the campaign trail, has called into question Washington’s continued support.

Trump said on the campaign trail that he could end the fighting within hours and has indicated he would talk directly with Putin.

The Kremlin has denied reports that Putin and the president-elect of the United States recently discussed the Ukraine conflict by phone.

Scholz, who did speak with Trump following his election win, told the German daily Sueddeutsche Zeitung on Friday that the incoming US leader had a “more nuanced” position on the conflict than was commonly thought.

Following the Putin-Scholz call, Polish Prime Minister Donald Tusk said he had been updated by the German leader on the discussion.

Tusk was “satisfied” that Scholz had “reiterated the Polish position: ‘Nothing about Ukraine without Ukraine’,” he said on social media platform X.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

On the day the U.S. elected Donald Trump as its 47th President, Germany’s ruling coalition of the centre-left Social Democrats (SPD), environmentalist Greens, and neo-liberal Free Democrats (FDP) dissolved after three years.

Chancellor Olaf Scholz sacked the Finance Minister Christian Lindner late in the evening on November 6 over budget-related disagreements that have riddled this 3-way coalition since last November. While the SPD and Greens are in favour of taking on more debt, FDP was insistent on increased taxes and spending cuts. Mr. Scholz called out Mr. Lindner for his ‘petty political tactics’.

“Finance Minister Lindner showed no willingness to implement any of our proposals,” said Mr. Scholz in a speech following the dismissal. He will now lead a minority government with the Greens as FDP has withdrawn all its leaders from the coalition.

The ruling government in Europe’s largest economy could not be collapsing at a more critical juncture – both geopolitically and economically.

The German economy has not been performing well and is looking at a second consecutive year of contraction. German Economy Minister Robert Habeck (Greens), announced on October 9 that the economy was expected to shrink by 0.2% this year. This is a downgrade from the 0.3% growth that was expected in April 2024, making Germany the only G-7 country to contract in 2024. This follows the predictions from major economic institutions in Germany.

The only positive news was that in Q3 of 2024, the German economy showed a 0.2% increase in GDP after a 0.3% contraction in the preceding quarter.

“The economy is proving more robust than previously forecast and the technical recession expected by many has failed to materialise,” noted Mr. Habeck.

The German government is predicting a return to growth from 2025 onwards. Mr. Habeck is counting on the successful implementation of a growth package involving 49 measures to revitalise the economy, including higher productivity, encouraging investments, and addressing long-term structural issues that he blames for the contracting economy. On October 23 , Mr. Habeck also proposed a “Deutschland Fund” to stimulate the German economy.

But Mr. Scholz’s decision to fire the Finance Minister puts a question mark on whether these measures could be implemented in time. While Mr. Scholz has called for a vote of confidence on January 15, the Leader of Opposition Friedrich Merz from the conservative Christian Democrats (CDU/CSU) has called for the vote to be taken sooner. The CDU/CSU currently lead the polls in Germany.

Structural issues

The war in Ukraine, which forced Germany to cut off its supply of cheap Russian gas, hit the economy, which was recovering from the global trends experienced during the COVID-19 pandemic. However, structural issues were noted by Mr. Habeck as the main drivers of a slowing economy.

According to Dr. Thomas Obst, senior economist at the German Economic Institute (IW), the structural issues referred to are chronic public underinvestment and an aging society with detrimental demographics that have also existed during earlier governments.

The International Monetary Fund has also cited the lack of public investment in Germany as one of the structural issues holding Germany back. “Money that has been budgeted for investment is routinely underspent, often because of staff shortages in municipalities,” noted the report.

Germany puts 2.6% of its GDP in public investments compared with almost 5% in Sweden. One prime example of a lack of investment is the Deutsche Bahn (German national railways), which has caused unending delays, overcrowding, and cancellations for more than a few years now. The investments have not kept up with the amount of passenger traffic and rail freight. In September 2024, a bridge collapse in the eastern city of Dresden further underlined the chronic underinvestment in public utilities.

“Under the current government, the competitiveness of German companies is increasingly deteriorating. This is also due to bad decisions of the current administration,” said Mr. Obst, calling for tax reforms to reduce the overall tax burden.

Dr. Klaus Wohlrabe, senior economist at the ifo Institute concurs. In addition to the structural issues mentioned above, Mr. Wohlrabe mentioned over-reliance on traditional industries, energy dependence on imports, and bureaucracy as other structural issues.

“(Former Chancellor Angela) Merkel’s tenure saw Germany’s economy rely heavily on automotive and manufacturing industries. These sectors, though vital, face growing competition and disruption, especially as the world shifts towards green technologies. Late adoption of electric vehicles has impacted Germany’s global competitiveness,” said Mr. Wohlrabe.

While the Russia-Ukraine war did raise gas prices in 2022, that situation is under control now. However, German energy policies in the Merkel government have ensured that it relies on fossil fuel imports.

“The decision to phase out nuclear (energy) made Germany more dependent on fossil fuel imports. The dependence on imported energy sources has impacted energy costs, stability, and manufacturing competitiveness,” said Mr. Wohlrabe.

Volkswagen shutting auto-plants?

The auto industry is one of the major revenue earners for Germany making up almost 5% of the economy. Auto giant Volkswagen is one of the largest industrial groups in the country. On October 28, Volkswagen’s works council head, Daniela Cavallo, told employees that the auto giant was planning to shut down three plants in Germany, which would affect tens of thousands of jobs. On October 31, Volkswagen requested its employees to take a 10% pay cut, according to Reuters.

Although Volkswagen did not officially announce anything about plant shutdowns, statements by its CEO, Thomas Schäfer, do not elicit much hope among employees.

“We are not productive enough at our German sites, and our factory costs are currently 25% to 50% higher than planned. This means that individual German plants are twice as expensive as the competition,” said Mr. Schäfer.

Mr. Obst notes that Chinese competitiveness in the electric car segment is a huge challenge to the German auto industry.

“The green transformation has brought the German car makers into a predicament. European demand for electric cars has been below expectations. Increased energy and labour costs render some auto production lines unprofitable,” said Mr. Obst.

Another home-grown chemical industry giant, BASF, is also planning to increase its investments in China following the energy price shock it experienced in 2022.

“Production in energy-intensive sectors, such as glass, chemicals, and metals, is almost 15% below the pre-pandemic level of Q4 2019. The energy price difference between the EU and the U.S. is simply too large for these sectors to compete with foreign companies in global markets”, said Mr. Obst.

The point for large structural shifts is ripe, according to Mr. Wohlrabe. “I think the energy-intensive industry will produce where the energy costs are lower. I do not see Germany becoming a country where energy is cheap in the near term. New industry structures could emerge,” said Mr. Wohlrabe, pointing out that the German population is not used to such changes.

Service industry preventing recession

The IW Economic Forecast Autumn 2024 noted that the services industry is the only shining light in the current German economy and the only sector preventing recession. However, the report notes that it is not enough to stimulate the economy.

According to Mr. Obst, there are three challenges preventing services from stimulating the economy. “Firstly, we have seen large wage increases in the service sector and hence an increase in labour costs leading to a loss of competitiveness in this industry. Secondly, labour productivity has decreased since 2022, adding to the competitiveness issue. Finally, demographic changes lead to a lack of skilled workforce,” said Mr. Obst.

Germany perennially suffers from a worker shortage in sectors such as engineering, IT, sciences, and healthcare. According to estimates, around 4,00,000 skilled workers are needed in Germany.

Towards the end of October, during the Intergovernmental Consultations between India and Germany, Berlin decided to increase the visas for skilled Indian workers from 20,000 to 90,000.

China factor

Another factor that could impact Germany’s export-oriented economy is the drop in demand from China, its largest trading partner.

“We saw a decline in exports to China not only this year, but also years before. This could be because China also produces high-technology products and exports them. It is also a serious competitor in the automobile segment. This impacts Germany’s growth model,” said Mr. Wohlrabe.

The recently announced EU tariffs on electric vehicles made in China and sold in Europe could lead to possible trade wars. Mr. Wohlrabe notes that Germany wants to prevent these tariffs, as they could lead to counter-tariffs from China as well, which could hit Germany the most.

“The big three automakers, BMW, Mercedes, and Volkswagen, make substantial revenue in China – between 30-40%. Hence a lower demand for their products affects these automakers significantly,” noted Mr. Obst.

German auto sales figures in China are not impressive if one looks at Q2 of 2024. BMW’s China sales dropped by 30%, Volkswagen by 15%, and Mercedes by 13%. German car sales, which had a 25% share in Chinese market before the pandemic, now account for just 15%, with most of the competition coming from home-grown Chinese electric car brands such as BYD.

Deutschland Fund to the rescue?

Mr. Habeck recently proposed a “Deutschland Fund” to stimulate the German economy. According to his 14-page proposal paper, the fund would focus on small and medium enterprises, large corporations, and startups that could receive a 10% government investment bonus in the form of tax credits. This would be in addition to the benefits already present for businesses.

Mr. Wohlrabe calls the proposal ambitious and one that targets critical bottlenecks such as infrastructure investment and digital modernisation, but practical and political hurdles are immense.

“The ‘Deutschland Fund’ would need a clear, transparent, and efficient allocation process to avoid bottlenecks. If not, it would set just another brick to the bureaucracy wall. It is important that all investment projects are supported, so that there is no selection by some authority. Another issue is the anticipation effect, if firms expect the Fund to be realised in practice, they will postpone their investments, knowing they will get some grants for it. This worsens the problem of the weak private investment that we currently have in Germany,” said Mr. Wohlrabe.

Chip giant Intel recently postponed its plans to set up its fab plant in Magdeburg, Germany. Intel had received a €10 billion subsidy for this plant from Berlin. More recently, another chipmaker, Wolfspeed, scrapped its plans to open a chipmaking facility for the auto industry, citing slower adoption of electric vehicles in Europe.

Germany’s ‘debt-brake rule’ could be another roadblock for initiatives such as the “Deutschland Fund”. According to the debt-brake or balanced budget rule, there is an upper limit on how much governments can borrow to finance public projects. The fiscal deficit cannot exceed 0.35% of the GDP.

The debt brake was the major bone of contention between the SPD and the outgoing FDP. Mr. Scholz was in favour of suspending the limit on the debt brake to allow more spending. Mr. Lindner was not in favour of it.

“For the ‘Deutschland Fund’ to gain traction, it might need to be financed creatively, such as through public-private partnerships or green bonds specifically earmarked for sustainability and digital projects,” said Mr. Wohlrabe, noting that this would require political negotiations but could appeal to parties more reluctant about new debt.

Political chaos

While Mr. Habeck’s Green Party found support for this proposal with one of its partners, the SPD, the FDP was not in favour of it. The just dismissed Finance Minister, Mr. Lindner, stated that the proposal called for a “fundamentally different economic policy for Germany” that will need to be discussed. Mr. Lindner had drafted his own proposal.

Political chaos has been the operating principle of the current ruling coalitionin Germany. Following the announcement of the economic outlook for the year, Chancellor Scholz called for a meeting with industry leaders to discuss issues. As his then coalition partners – Mr. Habeck and Mr. Lindner – were not part of this “industry summit,” Mr. Lindner decided to hold his own meeting with small and medium enterprise leaders.

The lack of unity among the ruling coalition partners eventually reached its breaking point on the evening of November 6 when Mr. Scholz fired his Finance Minister.

The German national election which was scheduled to happen in September 2025, will most likely be pre-poned to March or April next year if Mr. Scholz loses the confidence vote in January. If the confidence vote takes place earlier, the election could also happen before March.

(Nimish Sawant is an independent journalist based in Berlin)