Germany heads for early election as Olaf Scholz's coalition collapses

Finance Minister Christian Lindner sacked as three-party government falls apart

German Chancellor Olaf Scholz was elected in 2021 at the head of an untried coalition of social democrats, greens and liberals. AP

Germany was gearing up on Thursday for an early election after Chancellor Olaf Scholz pulled the plug on his ruling coalition.

Mr Scholz plans to hold a confidence vote in January, which his rump minority government is likely to lose, clearing the way for a general election in March. Opposition leader Friedrich Merz called on Thursday for the vote to be brought forward to next week.

The pro-business Free Democrats (FDP) also called for an earlier election after exiting Mr Scholz's three-party coalition. Party leader Christian Lindner was sacked as finance minister late on Wednesday after budget talks broke down, in what proved the final nail in the government's coffin.

President Frank-Walter Steinmeier indicated he would be willing to dissolve parliament, saying Germany "needs stable majorities and a government that is able to act". The head of state has the final say on whether to move forward the election, which was previously scheduled for September 2025.

He called on politicians to "live up to the scale of the challenges" amid voter concern over the future in Germany and the world, including after the US election. "The end of a coalition is not the end of the world. It is a political crisis that we must put behind us,” he said.

Formed in 2021, the first coalition between Mr Scholz's Social Democrats, the FDP and the Greens took power with an agenda to modernise Germany but has been beset by infighting and crises ranging from wars in Ukraine and the Middle East to illegal migration and a limp economy.

The final straw was a proposal by Mr Scholz suspend Germany's constitutional debt limit to avoid spending cuts while ensuring support for Ukraine, with all eyes on whether Kyiv's Nato allies will maintain their backing after Donald Trump's US election victory. The FDP refused to back more borrowing.

Mr Scholz wants to push through his economic policies before parliament is dissolved, relying on cobbled-together majorities in the Bundestag. Chancellery aide Joerg Kukies was appointed Finance Minister on Thursday as the government's collapse leaves the Social Democrats and Greens to hold the fort. Green Vice Chancellor Robert Habeck said the government was still functioning and was "firmly determined to fully fulfil the duties of office" until new elections are called.

Polls show all three ruling parties face a scathing verdict from voters, with Mr Merz's opposition Christian Democrats favoured to win the next election. Mr Merz said the government "lacked the strength" to revive Germany's economy. He said Germany could not afford months of limbo until a new government is formed.

"There is absolutely no reason to wait until January for the confidence vote. The coalition has no majority any more," Mr Merz said as he called for an election in the second half of January. "It is important that we very quickly return responsibility to the voters."

The chancellor's plan is for a confidence vote on January 15. If he loses, Mr Steinmeier will have three weeks to dissolve parliament, followed by an election within 60 days. "We need a government that is able to act, that has the strength to make the necessary decisions for our country," Mr Scholz told reporters.

Scholz accuses finance minister of blocking legislation

Mr Scholz said he fired Mr Lindner for his obstructive behaviour on budget disputes, accusing him of putting party before country and blocking legislation on spurious grounds. It comes with Europe rushing to form a united response on issues ranging from possible new US tariffs to Mr Trump's foreign policy.

Mr Lindner was focused on the short-term survival of his own party, Mr Scholz said. "Especially today, one day after such an important event as the US elections, this kind of selfishness is utterly incomprehensible," he said.

Speaking after Mr Scholz, Mr Lindner said the chancellor had tried to force him to break a constitutionally enshrined spending limit known as the debt brake, a move that Mr Lindner, a fiscal hawk, refused to support.

"Olaf Scholz refuses to recognise that our country needs a new economic model," he told reporters. "Olaf Scholz has showed he doesn't have the strength to give his country a new boost."

The SPD and the Greens, while at odds on some issues, agree that targeted government spending is needed.

Government at odds on how to rescue the economy

Germany's next government will have to tackle a flatlining economy, ageing infrastructure and rising support for the anti-immigrant Alternative for Germany (AfD) amid anger over illegal migration and extremism. With France also facing political uncertainty after snap elections this year, turmoil in the EU's two largest economies could hamper efforts to deepen the bloc's integration.

However, the collapse of the government could also be a blessing given the tensions within it, said ING economist Carsten Brzeski. "Elections and a new government could and should end the current paralysis of an entire country and offer new and clear policy guidance and certainty," he said.

The coalition has been at odds over how best to rescue Europe's largest economy, which is facing its second year of contraction and a crisis in its economic model after the end of cheap gas from Russia since its 2022 invasion of Ukraine, and amid increasing competition from China.

Mr Scholz said he had proposed capping energy costs for companies to bolster Germany's appeal as a place to do business. He wanted a package to help save jobs in the ailing motor industry, as well as increased support for Ukraine.

The FDP had proposed public spending cuts, lower taxes and less regulation as the answer to the malaise. It also wants to slow Germany's shift to a carbon-neutral economy.