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Germany’s Scholz looks to quell coalition divisions

German Chancellor Olaf Scholz will battle on Sunday to put out the fires threatening his government as the three-way coalition meets for crisis talks on a growing series of disputes.

Published: 26 March 2023 11:03 CEST
Updated: 26 March 2023 17:32 CEST

Germany's Chancellor Olaf Scholz speaks during a press conference after an EU Summit in Brussels, on March 24, 2023. Scholz will meet with his governing coalition partners on Sunday amid growing disputes. Photo: Ludovic MARIN / AFP

A little more than a year after taking office, the relationship between Scholz’s Social Democrats (SPD) and his governing partners, the Greens and the pro-business FDP, looks more strained than ever.

Earlier this week, Vice Chancellor and Economy Minister Robert Habeck of the Greens accused his coalition partners of blocking progress, while the FDP’s deputy chief Wolfgang Kubicki compared the Green politician to Russian President Vladimir Putin.

Kubicki later apologised but the damaging row underlines the state of the three-way coalition — the first in Germany’s post-war history.

The alliance got off to a good start in December 2021 under the motto of their coalition agreement — “Dare for more progress”.

It was put to a tough test when Russia invaded Ukraine just two months on, upending decades of German economic and political certainties.

But tensions have since soared — particularly between the Greens and the FDP.

The two are unnatural bedfellows, with the former set on environmental commitments to phase out nuclear energy and combustion engines, and the latter promoting very different economic policies.

“Everywhere you look in the government there are fires,” German magazine Der Spiegel said, with the partners wrangling over priorities and struggling for compromises.

Boiling over

It could not be “that in a coalition of progress only one coalition partner is responsible for progress and the others for preventing progress”, Habeck said at a Green party event during the week.

Sunday’s talks would be a good opportunity to “overcome blockages” on key issues, Habeck also told broadcaster ARD, blasting the coalition’s record and policy leaks.

At the root of Habeck’s discontent is a controversial project put forward by his ministry to ban the installation of new oil and gas boilers from 2024 — a year earlier than previously planned.

The accelerated move from fossil fuels to greener technologies such as heat pumps would be accompanied by a multi-billion-euro package of financial support for switchers, Habeck has promised.

But the idea has caused ructions within the coalition, with critics underlining the costs involved.

“The plans must go back to the drawing board and be fundamentally revised,” Finance Minister and FDP leader Christian Lindner said after a policy draft was leaked to German daily Bild.

Habeck’s determination had something in common with Putin, Kubicki said. Both, he declared, had “a similar belief that the state, the leader, the chosen one, knows better than the people what is good for them”.

As tempers frayed, SPD general secretary said the partners needed to “find a new way of working”.

“This is an appeal to all three parties in government — these public arguments must stop now,” he said.

‘Explosive material’

The boiler bust-up is only one item on a growing list of disagreements, including pension reform, child benefits and cuts to red tape.

The parties agreed in their coalition agreement to speed up the approval process for key projects to revitalise Germany’s creaking infrastructure.

But while the FDP would like to see support for more new motorways, the Greens want to privilege more climate-friendly projects.

The FDP have also rallied opposition against European Union plans to ban cars with internal combustion engines from 2035, finally wringing a compromise solution out of Brussels on Saturday despite Green scepticism.

Spending demands from across government — including more money for Germany’s sclerotic armed forces — have made the maths harder for the finance minister.

Lindner, who has insisted on a return to Germany’s strict constitutional spending limits, was forced earlier in March to push back the publication of spending plans for 2024 due to a lack of agreement.

Divisions over the budget threaten to bring an end to the coalition, if Scholz fails to back his finance minister, political scientist Juergen Falter told Bild.

Much of the coalition’s discord could be traced back to the fact that “the ideas of the Greens and the FDP simply do not fit together”, he said.

Bringing their opposing views together was always going to be difficult, according to Falter.

“Three-way alliances automatically have more explosive material,” he said.

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Output is expected to expand 0.3 percent this year, the economy ministry said, up from a prediction of 0.2 percent in February.

The slightly rosier picture comes after improvements in key indicators — from factory output to business activity — boosted hopes a recovery may be getting under way.

The German economy shrank slightly last year, hit by soaring inflation, a manufacturing slowdown and weakness in trading partners, and has acted as a major drag on the 20-nation eurozone.

But releasing its latest projections, the economy ministry said in a statement there were growing indications of a “turning point”.

“Signs of an economic upturn have increased significantly, especially in recent weeks,” Economy Minister Robert Habeck said at a press conference.

The ministry also cut its forecast for inflation this year to 2.4 percent, from a previous prediction of 2.8 percent, and sees the figure falling below two percent next year.

“The fall in inflation will lead to consumer demand — people have more money in their wallets again, and will spend this money,” said Habeck.

“So purchasing power is increasing, real wages are rising and this will contribute to a domestic economic recovery.”

Energy prices — which surged after Russia’s 2022 invasion of Ukraine — had also fallen and supply chain woes had eased, he added.

Several months ago there had been expectations of a strong rebound in 2024, with forecasts of growth above one percent, but these were dialled back at the start of the year as the economy continued to languish.

‘Germany has fallen behind’

But improving signs have fuelled hopes the lumbering economy — while not about to break into a sprint — may at least be getting back on its feet.

On Wednesday a closely-watched survey from the Ifo institute showed business sentiment rising for a third consecutive month in April, and more strongly than expected.

A key purchasing managers’ index survey this week showed that business activity in Germany had picked up.

And last week the central bank, the Bundesbank, forecast the economy would expand slightly in the first quarter, dodging a recession, after earlier predicting a contraction.

German Economics Minister Robert Habeck

Economics Minister Robert Habeck (Greens) presents the latest economic forecasts at a press conference in Berlin on Wednesday, April 24th. Photo: picture alliance/dpa | Michael Kappeler

Despite the economy’s improving prospects, growth of 0.3 percent is still slower than other developed economies and below past rates, and officials fret it is unlikely to pick up fast in the years ahead.

Habeck has repeatedly stressed solutions are needed for deep-rooted problems facing Germany, from an ageing population to labour shortages and a transition towards greener industries that is moving too slowly.

“Germany has fallen behind other countries in terms of competitiveness,” he said. “We still have a lot to do — we have to roll up our sleeves.”

Already facing turbulence from pandemic-related supply chain woes, the German economy’s problems deepened dramatically when Russia invaded Ukraine and slashed supplies of gas, hitting the country’s crucial manufacturers hard.

While the energy shock has faded, continued weakness in trading partners such as China, widespread strikes in recent months and higher eurozone interest rates have all prolonged the pain.

The European Central Bank has signalled it could start cutting borrowing costs in June, which would boost the eurozone.

But Habeck stressed that care was still needed as, despite the expectations of imminent easing, “tight monetary policy has not yet been lifted.”

In addition, disagreements in Chancellor Olaf Scholz’s three-party ruling coalition are hindering efforts to reignite growth, critics say.

This week the pro-business FDP party, a coalition partner, faced an angry backlash from Scholz’s SPD when it presented a 12-point plan for an “economic turnaround”, including deep cuts to state benefits.

Christian Lindner, the fiscally hawkish FDP finance minister, welcomed signs of “stabilisation” in the economic forecasts but stressed that projected medium-term growth was “too low to sustainably finance our state”.

“There are no arguments for postponing the economic turnaround,” he added.