(Bloomberg) — There was no holding back Olaf Scholz when he told stunned reporters in the halls of the Chancellery building in Berlin on Wednesday why he had just decided to fire Finance Minister Christian Lindner and bury his three-party coalition.
“Anyone who joins a government must act seriously and responsibly,” the usually reserved center-left leader said. “They must not disappear when things get tough. They must be prepared to compromise for the good of all citizens. But that is not what Christian Lindner is about.”
The personal attack was the culmination of a collapse that began, according to Schulz’s aides, late last year with a painful budget decision by Germany’s highest court. However, signs of trouble in the so-called “progressive coalition” between Schulz’s Social Democrats, Lindner’s Free Democrats, and Robert Habeck’s Greens were clear from the beginning, when the parties arrived in government with divergent goals and without a common vision for Germany’s future.
Despite taking office in the midst of the Covid-19 crisis, Schulz’s early term was tempered by the government’s decision to repurpose €60 billion of pandemic-related funds for climate and other special projects. This has provided each coalition member with a path to achieve its goals. For Lindner, this meant not raising taxes and adhering to Germany’s constitutional limits on debt; For Schulz, protecting the welfare state and raising the minimum wage; For Habeck, financing climate initiatives and expanding renewable energy.
However, the honeymoon was abruptly halted several months later with the Russian invasion of Ukraine and the realization that Germany under former Chancellor Angela Merkel had become overly dependent on Russia for energy. In the days following the February 2022 invasion, the alliance was able to create a special debt-financed fund worth €100 billion to increase defense spending and meet NATO’s spending target of 2% for the first time in decades. But with the onset of war in the East, the looming winter energy crisis, and the immediate need to increase military spending, the first cracks in the alliance began to appear.
These matters became public in the spring of 2023 when an early version of the planned heating reform was leaked to Bild, Germany’s largest tabloid newspaper. The goal of the legislation, led by Habeck, was to stimulate a shift away from fossil fuels and toward electric-powered heat pumps. However, according to Bild, this was an ideologically motivated attempt by the Green Party to impose costly upgrades on homeowners. Once the proposal was announced, the FDP seized every opportunity to water it down.
The dispute between the FDP and the Green Party marked the beginning of an open coalition struggle as individual party agendas began to sabotage the work of government. The FDP, which won 11.5% of the vote in 2021, was already drifting towards the 5% threshold needed to guarantee representation in the Bundestag, making it the weakest and most vulnerable member of Schulz’s coalition.
And things will get worse from there. The turning point came last December, when Germany’s highest court in Karlsruhe ruled that €60 billion in a special off-budget fund set up to cover pandemic costs could not be reallocated to climate initiatives, resulting in the government having to suspend its debt limit and beg for additional savings. In all its ministries. The decision raised questions about several similar funds set up during Merkel’s reign, and created another coalition crisis.
Money was the glue that held the alliance together. Once that was gone, things started to fall apart. By tying his political fortunes to insisting that Germany adhere to a debt brake – a rule put in place under Merkel to prevent a repeat of the bank bailouts that followed the global financial crisis – Lindner has made himself an obstacle to meeting Germany’s investment needs. By refusing to compromise on policies that would favor the FDP’s wealthier voter base, he has also become the odd man out.
With Schultz’s reluctance to intervene, signs of division became more apparent. After weeks of negotiations last summer, the coalition finally settled on an unconventional method to fill the gaps in the 2025 budget by converting grants into loans. Then, after the supposed deal was struck, Lindner suddenly raised the question of whether the solution was legal. This provoked a surprised response from Schulz, who was away on vacation, and who never forgave Lindner for this betrayal.
For his part, Linder accused Schulz and his government of violating his trust. Earlier in the year, the men made a private deal in which they agreed to find a solution to a controversial proposal related to the pension law. While Lindner believed the discussions would remain between the two, he was dismayed when he saw reports of them later appear in Bild newspaper.
At the end of October, during a government trip to New Delhi, Schulz and Habeck said they had abandoned Lindner, who was then attending an International Monetary Fund meeting in Washington. Schulz openly criticized the finance minister, not bothering to hide his frustration, and Habeck told reporters that Lindner was determined to leave the coalition and was only looking for a dignified way out.
Finally, three weeks before the coalition collapsed, fighting broke out in the open. Schulz announced a summit of industry representatives and did not invite Lindner or Habeck. The Finance Minister responded by organizing his own counter-summit, scheduling it a few hours before Schulz’s summit.
Lindner exacerbated the situation at the beginning of November by circulating a policy paper questioning key initiatives by Schulz and Habeck. Some saw this as a response to a paper Habeck published several weeks ago, in which he called for billions in subsidies for German companies – although the proposal was not in line with the coalition’s position. At this point, trust among coalition members had evaporated, and the question seemed to be who would leave first.
As Schulz 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.
As a child, Chancellor was a strong swimmer and later became a lifeguard. In that job, you learn that sometimes the only way to save the life of a drowning person when they are struck is to knock them down.
Although Wednesday’s outcome may seem inevitable, the decision to fire Lindner was not set in stone. Schulz’s speech was preceded by a coalition meeting in which cabinet members discussed how to close a gap of around 15 billion euros in the 2025 budget. Depending on the outcome, Schulz asked his chief spokesman to prepare three different speeches: one in case the politicians reach an agreement, and another in the event of a resignation. Lindner suddenly, and a third in which Schulz fires Lindner himself.
During the meeting, Schulz demanded that Lindner agree to another suspension of the debt brake – a request that the Finance Minister strongly rejected. A violent exchange ensued, according to those present, which ended with Schulz saying: “So, dear Christian, I no longer want you to be a member of my government – and tomorrow morning I will ask the Federal President to dismiss you.”
After a long moment of silence, Schulz added: “Well, things went badly.”
–With assistance from Chris Reiter.
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