German Chancellor Olaf Scholz loses vote of confidence

German Chancellor Olaf Scholz lost a vote of confidence in the country’s Bundestag on Monday, clearing the way for an early election in February.

Scholz was expected (and expected) to lose the vote, which he himself had called in November to trigger earlier-than-planned elections, which were originally scheduled for fall 2025.

It is only the sixth time in German history that such a vote has been held, and the fourth time that a president has failed to comply with the vote.

Scholz said on Monday that he had called the vote not only for Parliament but for the entire electorate.

“Do we dare to be a strong country, to invest powerfully in our future?” Scholz told lawmakers before the vote, according to a Google translation.

Scholz fired former Finance Minister Christian Lindner in November, effectively ending Germany’s ruling coalition that had been in power since 2021. It consisted of Scholz’s Social Democratic Party (SPD), Lindner and the Greens. party.

The SPD and the Green Party have remained in government as a de facto minority government, and will continue to do so even after Monday’s vote, until a new Bundestag is formed. Without the parliamentary majority necessary to pass laws, Scholz is nevertheless considered an outgoing duck.

The three-party coalition government was plagued by disagreements over budgetary and economic policy positions. Tensions came to a head with an article written by Lindner, in which he outlined his vision for reviving the German economy. However, the former Finance Minister also opposed the fundamental positions of the SPD and the Green Party in the newspaper.

The parties had also struggled to finalize Germany’s 2025 budget and ultimately appeared unable to reach a resolution.

The government will now operate on a provisional budget until the current Bundestag implements its own budget; Germany’s Finance Ministry said on Monday that it expects a provisional spending plan for 2025 no earlier than the middle of next year.

German President Frank-Walter Steinmeier now has 21 days to dissolve parliament. A new election must then be held within 60 days following this dissolution, with the date already set for February 23.

The German Constitution establishes a series of procedures intended to make the disintegration of a government as smooth as possible and avoid the political turmoil that the Weimar Republic experienced in the 1930s, a tumultuous period that played a key role in the rise of the Nazis in Germany.

The campaign for the 2025 elections has already begun, and German parties are discussing initial policy proposals around key issues such as immigration, the economy, taxes, the debt brake and social security. Full manifestos are likely to be published in the coming weeks.

The parties have also announced which of their candidates they would choose for chancellor if they received the highest proportion of votes. Despite the collapse of Scholz’s coalition, he has been chosen as the SPD’s candidate for chancellor, while opposition leader Friedrich Merz will take on that role for the CDU.

The CDU, together with its Bavarian affiliate, the Christian Social Union (CSU), currently leads center and looks set to emerge as the largest party, putting Merz in a prime position to succeed Scholz as chancellor. The CDU/CSU is then expected to form a coalition with the SPD or, in a less likely scenario, the Green Party, to form Germany’s next government.

Kallum Pickering, chief economist at Peel Hunt, said on Monday that regardless of the election result, Germany’s economic malaise would likely force an eventual deal on new fiscal support.

“Even if within, say, the first three to six months of the new administration, no changes are made to the debt brake, if they have a large enough majority, eventually I think economic conditions will simply force them to accept reality.” that they need fiscal stimulus,” Pickering told CNBC’s “Street Signs Europe.”

“As soon as fiscal stimulus is implemented in Germany, I think a lot of things are starting to look a little better,” he added.