Split on Economic Policy Puts Germany’s Government at Risk of Collapse

A breakup of the divided and unpopular coalition well before elections set for next September could leave the country directionless at a critical time for Europe.

Germany’s three-party coalition government, wracked by infighting and policy paralysis over a stagnant economy, is teetering on the brink of collapse.

It does not look likely to last until the next scheduled elections in September 2025 and could fall imminently over a nasty budget debate that comes to a head this month, analysts say. The main political parties are already laying out their campaign positions, and coalition leaders are barely talking.

The growing rift became more evident Friday evening, when a leaked position paper by the leader of one coalition party called for a fundamental economic overhaul that contradicts government policies, and is meant to cut costs.

The 18-page economic paper was written by Christian Lindner, the leader of the pro-market liberal Free Democratic Party.

Mr. Lindner wants to cut some social service payments, drop a special “solidarity tax” intended to help fund German reunification, and follow European Union climate regulations rather than more ambitious national ones — all demands that his coalition partners are highly unlikely to accept.

After coalition parties lost votes in three state elections in September, Mr. Lindner warned that the coming months would become the “autumn of decisions.” And he has suggested that if the coalition did not work in his favor, his party could quit the government of Chancellor Olaf Scholz.

“The way in which the government is currently presenting itself and also the unclear basic direction — neither corresponds to my expectations of government conduct,” Mr. Lindner said Thursday in an online interview. “The situation as it is now cannot continue.”

The German economy shrank last year and barely escaped recession this year. Consumer and business confidence is low, and the German export model has been severely challenged by China’s own slowdown and by sanctions on Russia.

What may keep the coalition together is the American presidential election.

If former President Donald J. Trump is re-elected, he is likely to pose formidable challenges for European security and trade. It would be a bad time for Germany, a central player in Europe, to be run by a caretaker government with little ability to make major decisions and preoccupied with its domestic politics, analysts warned.

Elected in 2021, the coalition was immediately confronted with the Russian invasion of Ukraine.

It managed the initial crisis well, but is increasingly split over policy. Mr. Scholz’s Social Democrats have been trying to preserve the country’s generous welfare state even as the economy slowed; the Greens are pressing to fight climate change despite the financial costs; and the Free Democrats are demanding adherence to Germany’s strict constitutional limits on budget deficits and debt.

The three key leaders of the coalition, Mr. Scholz; Robert Habeck of the Greens, the economic minister; and Mr. Lindner, the finance minister, are barely speaking to one another, according to local media reports.

“Lindner wants out of the coalition, he just doesn’t know how yet,” read a headline on Friday in Bild, the country’s hugely popular tabloid.

At the same time, an opposition legislator, Norbert Röttgen of the Christian Democrats, and others have argued that the shock of a Trump victory, and what it could entail for Ukraine, NATO and European security, means that “you would need a German government that is willing and able to lead from popular consensus and a new mandate.”

Germany’s financial and military support for Ukraine has been crucial for Kyiv, second only to the American contribution. Mr. Trump often criticizes Germany for its supposed deficit in overall military spending, and as president he tried to pull thousands of American troops out of the country.

If Mr. Trump is elected and decides to reduce or stop aid to Ukraine or undermines credibility in NATO, a functioning German government is considered vital to any coordinated European response.

For a long time, the assumption was that the government would stay together until the next federal election, especially given the weak performance of the coalition partners in opinion polls. The opposition Christian Democrats are well ahead in the polls and the party’s leader, Friedrich Merz, would most likely become chancellor if a vote were held now.

But Mr. Lindner’s liberal Free Democratic Party, which won nearly 12 percent of the vote in 2021, has sunk in recent polls below the 5 percent threshold necessary to have seats in the next Bundestag, or Parliament. He has been hinting strongly that if he broke from the government over the budget, he could run a new campaign on a platform of defending taxpayers against the big-spending coalition parties.

If he does break away later this month, there could be new elections as early as March.

But Mr. Lindner could also be trying to press for advantage in the budget talks. His own party is divided, and coalition collapses are rare in Germany.

The gap in the budget is under 10 billion euros, or almost $11 billion, hardly a large sum. Still, Mr. Lindner’s choice to reopen an agreement on pension reform has infuriated Mr. Scholz, and both sides have taken strong public positions on the issue that will be hard to pull back. Mr. Lindner objects to the cost, given an aging population and slower economic growth.

Even if the government survives until next September, it could remain essentially paralyzed on key issues, especially on how to produce sustained economic growth.

The government’s inability to agree on central policies is damaging all the coalition parties, said Christian Mölling of the German Council on Foreign Relations. The arguments about policy, “are no longer rational political arguments but look more and more like an emotional, personal thing,” he said.

With Mr. Scholz and President Emmanuel Macron of France so weak, “Europe is completely without a leader, there is no one,” he said. “The most stable government is possibly Italy.”

Germans have reasons to be concerned about their slowing economy, whether it is the crisis over Volkswagen’s plans to shut factories, the break with Russia over energy after Moscow invaded Ukraine, or China’s declining imports. So even if Germany’s economy is in reasonable shape compared to neighboring France or even Japan, that may be little consolation.

According to the latest poll by the public broadcaster ARD, only 14 percent said they were satisfied with the work of the coalition, and 54 percent wanted early elections.