Why is Germany having elections?
Germany is set to hold a federal election on February 23, 2025, following the collapse of Chancellor Olaf Scholz's three party coalition government in December last year. The conservative CDU/CSU is currently leading in the polls, with the populist, anti-immigrant, AfD - which has been endorsed by Elon Musk - in second place and rising, and which could spoil Wall Street's party expecting a boost to fiscal stimulus, if it outperforms.
- The coalition, comprising the Social Democratic Party (SPD), the Greens, and the Free Democratic Party (FDP), faced internal division after several months of dispute over the country's economic policies. The Greens/SDP proposed a debt-financed fund to stimulate corporate investment. However, this proposal conflicted with Germany's constitutional debt brake, which limits annual structural deficits to 0.35% of GDP per year.
- In response, the fiscally conservative FDP released a policy paper advocating for halting new regulations, implementing tax cuts, and reducing public spending, including on climate initiatives. This stance was at odds with the SPD and the Greens, leading to intensified disputes within the coalition.
- The discord culminated on November 6, 2024, when Chancellor Scholz dismissed Lindner from his position as finance minister, citing a loss of trust. This effectively dissolved the coalition and Scholz called for a vote of confidence in his government, which he lost on December 16, 2024, leading to snap elections.
