(Bloomberg) -- Chancellor Olaf Scholz has tried hard in recent days to convince German voters his fractious ruling coalition is still functional. His meeting with the three-party alliance’s top officials on Wednesday evening could determine whether the government can see out its four-year term.
Social Democrat Scholz has been in office with the Greens and Free Democrats since late 2021. While they can point to achievements including steering Europe’s biggest economy through the latter stages of the Covid-19 pandemic and the energy crisis triggered by Russia’s war on Ukraine, they have lately appeared a spent force riven by infighting.
The prospect of Donald Trump’s return to the White House adds a major new headwind for the coalition in Berlin.
The two main issues of contention that have pushed Scholz’s alliance close to collapse are how to plug a shortfall of about €8 billion ($8.7 billion) in the 2025 federal budget and what additional measures are needed to lift the economy out of a prolonged slump.
Scholz and his two most senior partners — Greens Economy Minister Robert Habeck and Finance Minister Christian Lindner of the business—friendly Free Democrats — agree that swift action is required. But they have starkly contrasting recipes for tackling challenges like high energy costs, crumbling infrastructure and onerous bureaucracy.
And their room for maneuver is limited by Lindner’s insistence on adhering to Germany’s strict borrowing rules.
Adding to the sense of chaos, they’ve held rival meetings with industry groups and labor officials and published conflicting policy papers, prompting calls from opposition lawmakers for the next election scheduled for September 2025 to be held early.
They’re also split on how to address the deepening woes of the country’s manufacturers, especially carmakers like Volkswagen AG which have been forced to rethink the transition to electric vehicles and consider unprecedented plant closures.
Auto-parts manufacturer Schaeffler AG said Tuesday it will cut about 4,700 jobs in Europe and close two sites as a deepening slump at German carmakers ripples through their supply chains.
True to form, the chancellor is resolutely upbeat — at least in public.
“It’s about having a feeling of commitment to the nation, not about ideology,” Scholz, who’s been holding intensive talks with Habeck and Lindner in the run-up to Wednesday’s meeting, told reporters Tuesday in Berlin.
“The question is not whether it can be done at all,” he added. “That is possible. Everyone has to work on that now.”
Scholz is due to host the coalition talks at the chancellery in Berlin starting at around 6 p.m. and they’re expected to drag into Thursday morning.
The outcome of the US presidential election could be another decisive factor for the future of the government.
Trump declared victory from his campaign headquarters in Florida shortly before 9 a.m. Berlin time after clinching key battleground states although the final results are still to be declared.
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A Trump victory is a nightmare for Germany’s political establishment, which fears a second term for the Republican candidate would unleash a bruising trade war and call into question the future of the NATO military alliance and backing for Ukraine’s defense against Russia’s invasion.
At the same time, concern about geopolitical instability could force coalition officials to find common ground, according to two senior officials, who asked not to be identified discussing confidential deliberations.
Habeck, who is also the vice chancellor, on Monday appealed to the alliance to show a sense of responsibility given the ongoing war in Ukraine and uncertainty surrounding the outcome of the US vote.
“This is the worst time to let a government collapse and there is absolutely no room for irresponsibility,” Habeck in an interview with public broadcaster ARD.
“Putin’s troops are advancing in Ukraine, and we are about to face an American election that could send shockwaves around the world.”
Opinion polls show that Germans are more or less evenly split on whether the next federal election should be brought forward.
They also suggest that the main opposition conservative alliance would win comfortably, with more than 30% of the vote and as much as 36% in one survey. That’s more than the combined level of support for all three parties in the ruling coalition.
Scholz’s SPD is trailing in third place on about 16%, behind the far-right Alternative for Germany on around 17%.
The Greens have about 10% and Lindner’s FDP roughly 4%, below the 5% threshold for getting into the lower house of parliament.
(Updates with latest for US election in third, 15th paragraphs)
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