(Bloomberg) -- German Chancellor Olaf Scholz’s Social Democrats agreed with opposition lawmakers to hold an early election in February, setting up a showdown between the SPD and the conservatives led by Friedrich Merz.
The agreement means the national ballot is set to be held on Feb. 23, seven months earlier than scheduled, Merz and the head of the SPD caucus in the lower house of parliament, Rolf Muetzenich, told reporters in separate statements Tuesday.
Europe’s largest economy was tipped into political crisis last week after Scholz fired Finance Minister Christian Lindner of the Free Democratic Party in a dispute over budget policy. That spelled the end of the three-party governing coalition, which included the Greens, and deprived it of a majority in the lower house of parliament.
Scholz will submit to a confidence vote in the Bundestag on Dec. 16, Muetzenich confirmed. Once he loses that, he can ask the president to dissolve parliament and the election would then have to be held within 60 days.
The government turmoil comes at a difficult moment for Germany. The country’s economic prospects have darkened amid weakness in its manufacturing sector and growing challenges for the key car industry. Berlin also has to contend with an incoming American president who has threatened European companies with tariffs and has had an antagonistic relationship with some US allies.
While opinion polls suggest Merz, leader of the center—right CDU/CSU alliance, is the frontrunner, Scholz on Sunday expressed confidence that he can win, noting that he defied bad polling numbers to come from behind to claim the chancellorship in 2021.
However, a Forsa survey for RTL/ntv published Tuesday showed that if Germans could choose their chancellor directly, 32% would pick Merz and 20% would vote for Robert Habeck of the Greens, the current vice chancellor. Only 16% would choose Scholz.
“It’s really time that the chancellor after those three years of the so-called progress coalition now paves the way for a new election,” Merz said Tuesday at a conference in Berlin. “Germany is a sleeping middle power and must become an active middle power. I’ll guarantee a new leadership in Europe for Europe.”
Merz’s alliance is leading with more than 30%, putting it in prime position to win back the chancellery after it lost to Scholz’s SPD party three years ago.
Backing for the SPD is at about 16% in third place, behind the far-right Alternative for Germany in second with around 18%. The Greens are at about 11% in fourth, while a new far-left party — the Alliance Sahra Wagenknecht — is fifth with roughly 8%.
The FDP is polling as low as 3%, down from 11.5% in the 2021 election, putting it in danger of missing the 5% threshold for getting into parliament.
Scholz was reluctant to hold a confidence vote right away to give what’s left of his government time to pass a number of outstanding bills, including on reducing the tax burden on workers and on measures to help manufacturers.
On top of that, the 2025 federal budget needs to be approved by the end of the year and lawmakers also have to sign off on a supplementary budget for 2024.
Merz said Tuesday his parliamentary group would be willing to cooperrate to get the 2024 finance plan passed.
Lawmakers from Scholz’s party and the Greens are also pushing for limited cooperation with opposition lawmakers to pass legislation, including some military procurement projects, which would guarantee planning security for defense contractors, according to people familiar with the planning.
Coalition negotiations in Germany usually take several months which means that the next government may not be in place before April at the earliest.
As things stand, a CDU/CSU-led “grand coalition” with the Social Democrats looks the likeliest outcome, with possibly the Greens as a junior partner.
German industry lobbies have echoed calls for a swift election, arguing that the country badly needs political stability given the current geopolitical upheaval.
Germany’s economy has failed to mount a sustained rebound from the pandemic and war in Ukraine, with some economists predicting 2024 output to shrink for a second year in a row.
The main weakness is its important manufacturing sector, which is weighed down by soft foreign demand, high borrowing costs and a host of structural issues at home.
Investor sentiment in Germany unexpectedly worsened in November, with an expectations index by the ZEW institute falling to 7.4 from 13.1 the previous month. Economists had expected an increase to 13.2.
--With assistance from Kamil Kowalcze.
(Updates with confirmation of timeline starting in first paragraph.)
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