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A senior figure in Germany’s smallest coalition party refused to rule out a government collapse on Monday, challenging bigger parties to change course on budgetary policy at the start of a make-or-break week for Chancellor Olaf Scholz’s tottering Cabinet and a difficult period for Europe’s largest economy.
Bijan Djir-Sarai, general secretary of Finance Minister Christian Lindner’s Free Democrats (FDP), told reporters after a party leadership meeting that the interventionist policies of Greens economy minister Robert Habeck had failed.
Asked whether the government could fall at Wednesday’s coalition meeting if it did not adopt the FDP’s prescription of lower tax and spending, Djir-Sarai said: “We will see.”
The three coalition parties disagree over the right response to the structural headwinds facing the country’s economy, whose car industries are dealing with labor tensions and a growing competitive threat from Chinese rivals.
Scholz’s Social Democrats and the Greens, themselves at odds on a host of issues, agree that targeted government spending is needed to stimulate the German economy and reject the FDP’s supply-side focus.
Lindner’s neoliberal party surprised his partners on Friday with a budget document that proposed tax and spending cuts and deregulation as the answer to Germany’s economic malaise.
The FDP seeks cuts that would hit core Green ambitions by ending a climate protection fund and softening environment protection regulations.
Djir-Sarai’s downbeat assessment contrasted with that of Matthias Miersch, the SPD’s secretary-general, who told public television all parties would live up to their responsibilities and find a way through the crisis.
“I’m optimistic that all parties want to create stability for this country in difficult times,” he said. “Supporting the economy, spurring investments and cutting bureaucracy: We share the same goals.”
Germany would especially need a stable government if Donald Trump won this week’s U.S. presidential election, he added, without elaborating.
Scholz, who met with his party’s top leadership and dined with Lindner late on Sunday, is expected to hold talks with the Greens’ de facto leader Habeck, on Monday, laying the ground for several three-way summits of the government’s top leadership.
Scholz’s spokesperson said he expected the government to last out its term until next September’s scheduled elections.
Habeck proposed an investment program that would repurpose 10 billion euros ($10.9 billion) freed up by U.S. semiconductor giant Intel’s decision to back out of a government-backed chip factory project. Lindner would cut that budget allocation entirely.
The three parties have each held separate business dialogues in recent days.
“The German government has just entered a new stage of a slow-burning political crisis that could be the last step before the eventual collapse of the governing coalition,” wrote ING’s Carsten Brzeski.
A collapse could leave Scholz heading a minority government, relying on ad hoc parliamentary majorities to govern, or to early elections, which polls suggest would be disastrous for the three coalition parties.
The SPD and Greens are well down from their showing in the 2021 general election, while the FDP could be ejected from parliament altogether.
The conservatives, at 36%, are at more than twice the level of their nearest rival, the far-right Alternative for Germany (AfD) at 16%.
