German Chancellor Olaf Scholz was defeated in a vote of no confidence in the Bundestag.

The results were announced after Prime Minister Scholz’s three-party coalition government collapsed in November, leaving him with a minority government. The vote, called by Scholz himself, is seen as a tactical move to force early elections, rather than waiting until September 2025 as originally planned.

The no-confidence motion was passed with 394 votes against Scholz and 207 votes in favor. 116 people abstained. The result paved the way for German President Frank-Walter Steinmeier to dissolve parliament, which, according to Germany’s constitution, must occur within 21 days. A new national election is scheduled for February 23, 2025.

Monday’s vote marks the sixth time in Germany’s postwar history that a chancellor has faced a formal no-confidence vote, and the fourth time a sitting chancellor has been defeated.

Germany’s DAX index ended 0.45% lower due to volatility.

political strategy

Scholz framed the no-confidence vote as a way to force voters to “determine the political course of our country.” In a speech before the vote, he argued that Germany needed to “dare to be strong” and “invest strongly in our future.” He also promised to push for “massive” investment in defense and infrastructure if re-elected.

Mr. Scholz’s critics called his move a “kamikaze” strategy, and opposition politicians said he was gambling with Germany’s political stability to restore his party’s flagging popularity.

Collapse of coalition government

Scholz’s three-party coalition government, which included the Social Democratic Party (SPD), Free Democratic Party (FDP) and Green Party, collapsed in November after Scholz fired Finance Minister Christian Lindner, who led the FDP.

In response, the FDP withdrew the remaining ministers. The governments have been unable to agree on key issues such as Germany’s 2025 federal budget and the treatment of the constitutional “debt brake” that limits borrowing.

The SPD and the Green Party have continued to govern as a de facto minority government, but have not won the parliamentary majority needed to pass new laws.

debt brake

The debt brake (Schuldenbremse) is a rule designed to limit a government’s ability to run structural budget deficits. It was introduced in 2009 as an amendment to the German Constitution (Grundgesetz) in response to the 2008 global financial crisis.

This is one of the strictest financial rules in the world. With special exceptions, the federal government is only allowed a structural deficit of 0.35% of GDP each year. Stricter rules apply in Germany’s 16 federal states (Länder). We are required to maintain a balanced budget with no structural deficits.

Amendments would require a two-thirds majority in parliament, making it difficult.

In November, the FDP refused to ease the debt brake on additional borrowing to finance infrastructure, climate action, social welfare, defense and aid to Ukraine.

In response, the Social Democratic Party argued that the spending was necessary. They sought to exploit loopholes, reinterpretations, and creative accounting techniques in the law to circumvent the debt brake. For example, they proposed classifying aid to Ukraine as “special” and excluding it from “structural deficit” calculations, similar to how certain “green investments” are excluded under EU fiscal rules. proposed excluding investment expenditures.

election campaign begins

With February’s general election confirmed, Germany’s political parties have begun gearing up for a fierce campaign.

Scholz’s center-left SPD plans to once again field him as its candidate for prime minister, despite recent opinion polls showing his party’s popularity has declined. The FDP is hovering around the 4% threshold needed to enter parliament.

The Green Party’s support ratings are also declining.

Friedrich Merz, leader of the opposition Christian Democratic Union (CDU), is the frontrunner to replace Scholz. The CDU currently leads the polls with around 33% support, along with its Bavarian branch, the Christian Social Union (CSU), well ahead of the SPD.

The far-right Alternative for Germany (AfD) party, which has around 17% of the vote in current opinion polls, is also expected to be a major player in the election. No mainstream party has indicated an intention to form a coalition with the AfD, but the AfD’s rising vote share could complicate coalition building.

Possibility of coalition

Although the CDU is seen as the favorite to lead the next government after February’s general election, it is unlikely that any party will be able to win a majority, and Germany will once again be faced with complex coalition negotiations.

Merz has ruled out the possibility of governing alongside the AfD, and any potential coalition with the SPD or the Greens would face significant ideological challenges. On the other hand, the FDP may not be able to pass the electoral threshold required to enter parliament, leaving fewer coalition partners available.