(Bloomberg) — There was no holding Olaf Scholz back as he told astonished reporters in the halls of Berlin’s chancellery building on Wednesday why he had just decided to dismiss Finance Minister Christian Lindner and bury his own three-party coalition.
“Anyone who joins a government must act seriously and responsibly,” the normally reserved center-left leader said. “They must not go missing when things get difficult. They must be prepared to compromise in the interests of all citizens. But that’s not what Christian Lindner is about.”
The personal attack was the culmination of a breakdown that, according to Scholz aides, started late last year with a bruising budget ruling by Germany’s highest court. Yet signs of trouble in the so-called “progress coalition” between Scholz’s Social Democrats, Lindner’s Free Democrats and Robert Habeck’s Greens were apparent from the start, when the parties arrived in government with disparate aims and no shared vision for the future of Germany.
Despite taking office in the midst of the Covid-19 crisis, Scholz’s early tenure was eased by the government’s decision to repurpose €60 billions of pandemic-related funds for climate and other special projects. That allowed each of the coalition members a path to pursuing their goals. For Lindner, that meant not raising taxes and sticking to Germany’s constitutional restrictions on debt; for Scholz, protecting the welfare state and raising minimum wage; and for Habeck, funding climate initiatives and expanding renewable power.
Yet that honeymoon was brought to an abrupt halt several months later with Russia’s invasion of Ukraine and the realization that under former chancellor Angela Merkel, Germany had become overly reliant on Russia for energy. In the days after the February 2022 invasion, the coalition was able to create a special debt-financed fund of €100 billion to ramp up defense spending and meet NATO’s 2% spending goal for the first time in decades. Yet with war unfolding in the east, a winter energy crisis on the horizon, and an immediate need to increase military spending, the first cracks in the coalition began to emerge.
Those became public in spring 2023 when an early version of a planned heating reform was leaked to Bild, Germany’s largest tabloid. The legislation, spearheaded by Habeck, was designed to incentivize a shift away from fossil fuels and toward electric-powered heat pumps. Yet in Bild’s telling, it was an ideologically motivated attempt by the Greens to force costly upgrades on homeowners. Once the proposal was made public, the FDP seized on every opportunity to dilute it.
The spat between the FDP and the Greens marked the beginning of open coalition conflict as individual party agendas started to subvert the government’s work. The FDP, which had won 11.5% of the vote in 2021, was already drifting toward the 5% threshold needed to guarantee representation in the Bundestag, making it the weakest and most vulnerable member of Scholz’s alliance.
Things would only get worse from there. The inflection point came last December, when Germany’s highest court in Karlsruhe ruled that the €60 billion in a special off-budget fund set up for pandemic costs could not be repurposed for climate initiatives, resulting in the government having to suspend its debt limit and scrounge for additional savings across all its ministries. The decision raised questions about numerous similar funds set up during the Merkel era, and created another coalition crisis.
Money was the glue that held the coalition together. Once that was gone, things started to fall apart. By attaching his political fortunes to an insistence that Germany stick to the debt brake — a rule set up under Merkel to prevent a repeat of the bank bailouts that followed the global financial crisis — Lindner made himself an obstacle to addressing Germany’s investment needs. By refusing to compromise on policies that would narrowly favor the FDP’s wealthier voter base, he also became the odd man out.
With Scholz reluctant to intervene, signs of disunity became clearer and clearer. After weeks of negotiations last summer, the coalition finally settled on an unorthodox method of closing gaps in the 2025 budget by converting grants into loans. Then, after the deal had supposedly been sealed, Lindner suddenly raised the question of whether the solution was legal. That drew a surprise rebuttal from Scholz, who was away on vacation, and who never forgave Lindner for this betrayal.
For his part, Linder has also accused Scholz and his cabinet of violating his confidence. Earlier in the year, the men privately made a handshake deal agreeing to find a solution to a controversial proposal involving a pension law. While Lindner had thought the discussions would stay between the two of them, he was dismayed to see reporting about them appear later in Bild.
At the end of October, during a government trip to New Delhi, Scholz and Habeck all but said that they had given up on Lindner, who was then attending an IMF meeting in Washington. Scholz openly criticized the finance minister, not bothering to conceal his frustration, and Habeck told reporters that Lindner was determined to leave the coalition and was just looking for a dignified way out.
Finally, three weeks before the coalition collapsed, the fighting burst out in the open. Scholz announced a summit for industry representatives and pointedly did not invite Lindner or Habeck. The finance minister responded by organizing his own counter-summit, and scheduling it just a few hours before Scholz’s.
Lindner exacerbated the situation at the beginning of November by circulating a policy paper that questioned Scholz and Habeck’s key initiatives. Some saw it as a response to a paper Habeck had published several weeks earlier, in which he called for billions in subsidies for German companies — knowing the proposition was not aligned with the coalition’s position. At this point, trust among the coalition members had all but evaporated, and the question seemed to be who would leave first.
As Scholz contemplated a future working relationship with Lindner in the run-up to Wednesday’s meeting, according to a person familiar with his thinking, he was reminded of a lesson from his youth.
When the chancellor was a child, he was a good swimmer and later became a lifeguard. In that job, he learned that sometimes the only way to save a drowning person’s life when they’re thrashing is to knock them out.
While Wednesday’s outcome might have seemed inevitable, the decision to fire Lindner was not set in stone. Scholz’s speech was preceded by a coalition meeting in which cabinet members discussed how to plug a roughly €15 billion hole in the 2025 budget. Depending on the outcome, Scholz asked his chief spokesman to prepare three different speeches: one in the event that the politicians reached an agreement, another in the event that Lindner suddenly resigned, and a third in which Scholz fired Lindner himself.
During the meeting, Scholz demanded that Lindner agree to another debt brake suspension — a request that the finance minster forcefully rejected. A fierce exchange followed, according to people present, which ended with Scholz saying, “Then, dear Christian, I no longer want you to be a member of my cabinet — and tomorrow morning I will ask the Federal President to dismiss you.”
After a long moment of silence, Scholz added, “well, that went badly.”
–With assistance from Chris Reiter.
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