Chancellor Olaf Scholz lost a confidence vote on Monday leaving a deeply fragmented Germany in his wake.
Scholz Loses Confidence Vote
The Wall Street Journal reports Germany Heads Toward Early Elections After Scholz Loses Confidence Vote
Embattled German Chancellor Olaf Scholz lost a confidence vote on Monday, the first step in a sequence of events that will lead to early elections next year—and the latest symptom of mounting political instability in Europe.
Monday’s vote came after the dramatic collapse of Scholz’s strife-ridden coalition government last month, which added a political crisis to the economic slump that has gripped the country for the past two years.
Without a majority in Parliament, Scholz called a confidence vote—which he fully expected to lose—to clear the way for the dissolution of Parliament and a new vote, now expected in February. Germany’s post-World War II constitution instituted a multistep process for early elections in an attempt to prevent the endemic political instability of the prewar years, where governments were formed and fell in quick successions.
“Today I am putting the question of confidence to all voters: Do we trust ourselves to invest vigorously in our future as a strong country?” Scholz said during debates in Parliament on Monday. “That is why my aim is to bring forward the federal election—so that the citizens can set the political course.”
The end of Scholz’s three-way coalition of free-market liberals, social democrats and Greens was marred by disagreements on how Europe’s largest economy can be rescued from a prolonged slumber that has turned it from the continent’s economic engine to a laggard.
The Bundesbank, Germany’s central bank, warned last week that the economy is expected to stagnate next year. That would make it the third consecutive year of contraction or flat growth, as the country’s once-mighty exporters struggle with mounting trade barriers around the world and face increasing competition from China. If President-elect Donald Trump goes ahead with his threat to impose high tariffs on European and Chinese imports, Germany’s economy could even shrink sharply, the Bundesbank said.
That is bad news for Germany whose sole economic model—which for years was predicated on access to cheap Russian energy, a security blanket provided by the U.S., and an export strategy heavily reliant on China—is in deep crisis. Analysts say the country needs urgent reforms to resuscitate an economy that has barely grown since 2019.
Merz and Scholz have different solutions in mind. The current chancellor has called for bailouts and subsidies to save jobs and prop up struggling carmakers, while Merz has floated a menu of supply-side measures such as lower taxes, less bureaucracy and steps that would make it cheaper for businesses to reach Berlin’s climate goals.
Understanding German Elections
Except for seats won outright in smaller districts, a party needs to meet a threshold of at least 5 percent to win seats in parliament.
Die Linke (far left) will be out, FW will be out, others will be out, and FDP is on the bubble.
Collapse of the Traffic Light Coalition
In German politics, a traffic light coalition is a coalition government of the Social Democratic Party (SPD), the Free Democratic Party (FDP) and Alliance 90/The Greens.
It is named after the parties’ traditional colors, respectively red, yellow, and green.
The “Traffic Light” Coalition Collapsed in November when Chancellor Scholz fired Christian Lindner, his Finance Minister.
“The finance minister shows no willingness to implement the offer for the good of our country. I do not want to subject our country to such behavior any more,” Scholz said, visibly irritated. Scholz alleged that “Lindner only cares about the survival of his own party.”
Speaking soon after, Lindner shifted blame to the chancellor. “Olaf Scholz has played down the economic concerns of the citizens,” he said. “His counterproposals are dull, unambitious and do nothing to combat the weak growth.”
Linder is from FDP.
It’s quite something to go from having the position of finance minister to one of zero representation in all of parliament. That now appears likely.
What’s Ahead?
The only thing an election will do is shift the power from one very unstable coalition to another very unstable coalition.
It takes 5 percent to have representation and FDP might not make the threshold.
All of the parties rule out an alliance with AfD (reportedly Far Right) and BSW (reportedly Far Left). Combined, that is 22-25 percent of the total.
AfD and BSW have three things in common. They are both anti-immigration, anti-NATO, and anti-Green.
Anti-NATO Factions
The Center for Eastern Studies reports The BSW campaign against US intermediate missile systems and a NATO HQ in Germany
For several months, the far-left [leader] Sahra Wagenknecht Alliance (BSW) has been waging a campaign challenging the German government’s security policy decisions. It aims to halt military support for Ukraine, initiate dialogue with Russia, and curtail Germany’s collaboration with the United States and its engagement in NATO. The BSW particularly criticises two issues directly affecting the security of NATO’s eastern flank.
Since July, the BSW has campaigned for Berlin to revoke its approval for the deployment of US intermediate-range missile systems, including the SM-6 (with a range exceeding 500 km), Tomahawk (around 1,300 km), and hypersonic missiles (exceeding 3,000 km) in western Germany from 2026 onwards.
Anti-NATO Factions
With so much in common between the Far Left and Far Right, one has to wonder about the meanings of Left and Right.
At least a quarter of the Germany wants nothing to do with NATO.
Factor in the Greens at 11-15 percent and now you have as much as 40 percent of the country anti-NATO.
The last Grand Coalition (SPD and Union) nearly collapsed and this go around would might not even have a majority. Union is CDU/CSU.
CDU/CSU’s favorite alliance is with FDP, a party that may have zero representation. There is no working coalition that makes any sense.
Battle With Trump Looms
The German and French governments are both nonfunctional.
This is a disaster on deck for the EU.
China’s 10-Year Bond Yield Hits New Record Low
Yesterday, I noted China’s 10-Year Bond Yield Hits New Record Low on Disappointing Data
The Japanification of China takes another big leap forward. And a huge fight with Trump is coming up.
Because the US is the fastest growing economy, the dollar keeps getting stronger.
Currency wars are coming over spending, investments, and trade.