Germany’s government collapsed yesterday after Chancellor Olaf Scholz dismissed Finance Minister Christian Lindner.
The three-way coalition splintered over budget issues, with Lindner’s economically liberal Free Democratic Party supporting spending cuts.
“There is war in Europe, tensions are increasing in the Middle East. At the same time, our economy is stagnating,” Scholz said in a televised address.
“We need to invest considerably more in our defence and in the Bundeswehr [German armed forces], especially now, after the outcome of the US elections.”
Scholz’s Social Democrats and Economy Minister Robert Habeck’s Greens have backed increased spending. Habeck released a proposal for major investment in infrastructure and businesses last month.
Scholz has requested a vote of confidence for January 15, though opposition leader Friedrich Merz has called for the vote to be held by the start of next week. If the government loses the vote of confidence, elections would take place within 60 days.
The Free Democratic Party withdrew its other ministers from the cabinet after Lindner was fired.
Germany’s economy has struggled with low growth and a weak labour market. The country’s GDP grew by 0.2% last quarter, and inflation surged to 2.4%.
Major German companies have increasingly invested outside Germany, causing a net outflow of over EU€650 billion since 2010. Almost 40% of this has occurred since Scholz’s three-way coalition was voted in, in 2021.
Intel and Wolfspeed both cancelled plans to build factories in Germany in recent months, while Volkswagen is aiming to close at least three of its German plants.