German Chancellor Olaf Scholz loses confidence vote

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

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

It marks only the sixth time in Germany’s history that such a vote has taken place, and the fourth time a president has fallen foul of the vote.

Scholz said Monday that he had called the vote not only for parliament but the whole of the electorate.

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

Scholz sacked former Finance Minister Christian Lindner in November, effectively bringing an end to Germany’s ruling coalition which had been in power since 2021. It was made up of Scholz’ Social Democratic Party (SPD), Lindner’s Free Democratic Party (FDP) and the Green party.

The SPD and 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 needed to pass laws, Scholz is however widely seen as a lame duck.

The three-way coalition government was plagued by disagreements about budgetary and economic policy positions. Tensions came to a head with a paper authored by Lindner, in which he outlined his vision to revive the German economy. However, the former finance minister also argued against fundamental positions of the SPD and Green party in the paper.

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

The government is now set to operate under a provisional budget until the incumbent Bundestag implements its own budget — with Germany’s finance ministry saying Monday that it expects a provisional spending plan for 2025 no sooner than the middle of next year.

German President Frank-Walter Steinmeier now has 21 days to dissolve parliament. A new election then needs to take place within 60 days of this dissolution, with the date already set for Feb. 23.

The German constitution sets out a series of procedures aiming to make the unravelling of a government as calm as possible and avoid the political turmoil that was seen by the Weimar Republic in the 1930s — a tumultuous period which played a key part in the rise of the Nazis in Germany.

Campaigning for the 2025 election has already begun, with Germany’s parties discussing initial policy proposals around key themes like immigration, the economy, taxes, the debt brake and social security. Full manifestos are likely to be released in the coming weeks.

Parties have also announced which of their candidates they would tap for chancellor if they won the biggest share of votes. Despite the collapse of Scholz’ coalition, he has been elected as the SPD’s chancellor candidate, whilst opposition leader Friedrich Merz will take on that role for the CDU.

The CDU, along with its Bavarian affiliate, the Christian Social Union (CSU), is currently leading polls and looks set to emerge as the biggest party, putting Merz in prime position to succeed Scholz as chancellor. The CDU/CSU is then widely expected to enter a coalition with either 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 Monday that regardless of the election outcome, Germany’s economic malaise was likely to force an eventual agreement on fresh fiscal support.

“Even if within say the first three to six months of the new administration you don’t get changes to the debt brake, if they have a big enough majority, eventually I think economic conditions will just force them to accept the reality that they need a fiscal stimulus,” Pickering told CNBC’s “Street Signs Europe.”

“The moment you get a fiscal stimulus in Germany, I think a lot of things start to look a bit better,” he added.