(Bloomberg) -- Germany is headed for months of political deadlock as voters return to the ballot box for another federal election in February and with coalition negotiations potentially lasting several months after that.
Lawmakers in Germany’s lower house on Monday backed a confidence motion pushed by Chancellor Olaf Scholz that will trigger a new election on Feb. 23, seven months ahead of schedule. Scholz lost his majority in parliament after his ruling coalition fell apart in November amid infighting.
The political uncertainty comes at a delicate time for Europe’s largest economy, which has stagnated for years. In addition to long-festering competitive issues, Donald Trump’s return to the White House threatens to intensify pressure on Germany by raising questions over US support for Ukraine and imposing new tariffs that could hit the country’s exporters.
“We need more growth and that’s only possible with more investments into our infrastructure,” Scholz said in the Bundestag on Monday. “This is the task of our generation now — future generations will measure us by this challenge.”
Scholz’s Social Democrats, along with his former coalition partners the liberal Free Democrats and the Greens, have suffered in the polls.
The conservative CDU/CSU alliance under Friedrich Merz leads with support at around 31%, the far-right Alternative for Germany — or AfD — is second with 19.8% and the SPD third at 17%, according to the latest Bloomberg polling average.
The Greens are fourth with 11.2% and the BSW — a new far-left party founded in January — fifth at 7.5%. Lindner’s FDP remains in danger of missing the 5% threshold for getting into parliament with 4.9%.
After the election, it will take weeks, if not months until a new coalition government will be formed. Although the CDU/CSU is leading in the polls, it’s far from winning an absolute majority and would need at least one, and potentially more, coalition partners. And the more parties that qualify for seats in parliament the more difficult the arithmetic to build an alliance.
The leading candidates have already started to position themselves as best placed to solve the many economic, social and security problems they say confront the country.
Merz and the leader of the CDU’s Bavarian sister party CSU, Markus Soeder, will present their parties’ common campaign platform on Tuesday. It proposes an immediate halt on the admission of illegal migrants, income tax cuts, continued support for Ukraine, and a commitment to the constitutional debt brake. In many cases, though, the program doesn’t say how these proposals will be financed.
Merz on Monday accused Scholz of “leaving the country in one of the biggest economic crises of the post-war period,” adding that “what lies ahead of us will be a tremendous effort.”
The next chancellor will need to secure funds and public support for massive investments needed to upgrade crumbling infrastructure, shore up defense capabilities and shift to a more technologically advanced and climate-friendly economy. Alongside reviving growth, government borrowing as well as irregular migration will be key election topics.
The German economy is set to shrink for a second straight year due to dwindling foreign demand and the jump in energy prices that followed Russia’s invasion of Ukraine. There are also new headwinds from possible US trade levies and political uncertainty before snap elections.
“No industry sector is really optimistic about 2025 — the new federal government has a lot of work to do,” said Klaus Wohlrabe from Ifo Institut, one of Germany’s most renowned economic research institutes. About a third of companies in Germany expect their economic situation to worsen next year, according to its latest survey.
Some 56% of surveyed companies anticipate their situation to remain unchanged, and just 13% expect business development to pick up next year. “Companies currently see no signs of an economic upturn. Given that the economy was already doing poorly in 2024, these figures are worrying,” Wohlrabe said.
What Bloomberg Economics Says...
“Germany’s problems won’t go away on their own. Retooling the economy for the future, improving productivity and tackling the causes of high energy costs urgently need the next government’s attention.”
—Martin Ademmer and Jamie Rush. Click here for the full GERMANY INSIGHT
In the Bundestag, a majority of 394 lawmakers backed Monday’s no-confidence measure. Scholz can now ask President Frank-Walter Steinmeier to dissolve the parliament and formally set the election date. The fellow Social Democrat has indicated that he’ll go along with Scholz’s timetable.
So far there have only been two cases in which German chancellors have used this parliamentary instrument with the aim of losing a confidence vote in order to bring about new elections: Former CDU Chancellor Helmut Kohl did it in 1982 and his SPD successor Gerhard Schroeder in 2005. Kohl won, while Schroeder lost.
Robert Habeck, the current economy minister and vice chancellor and the lead candidate for the Greens, warned that domestic political crises were distracting countries from seeing the bigger picture.
“While we in Central Europe are largely preoccupied with ourselves, the world is not standing still,” Habeck said. “And it is not a good state of affairs.”
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