Germany before the new elections in 2025

The Political Situation Following the Collapse of the “Traffic Light Coalition”

What is the timeline leading up to the new elections?

 

The timeline initially favored by Chancellor Olaf Scholz envisioned continuing with a red-green minority government until the end of the year, relying on support mainly from the CDU/CSU for specific legislative initiatives. Scholz planned to call a vote of confidence in the Bundestag on January 15. Under this scenario, new elections would have been held on March 9, one week before the Hamburg state elections. Since a victory in Hamburg seemed possible for the SPD with Mayor Peter Tschentscher, this could have provided a boost for the Social Democrats at the federal level. However, this plan has failed. The opposition has refused to support any legislative initiatives of the red-green minority government until Scholz calls a vote of confidence in Parliament. Now, a compromise is being sought, with the Chancellor signaling he could face the parliamentary vote sooner. The current scenario is as follows: Scholz will seek a vote of confidence on December 16, during the last Bundestag session of the year, and elections could then be scheduled for February 23.

 

What laws could a red-green minority government still pass through the Bundestag?

 

The SPD and CDU parliamentary leaders are set to negotiate where a cooperation is still possible. Potential agreements could be reached on the following initiatives:

• Law against “cold progression” (bracket creep)
• Increase in child benefits
• Measures to protect the Federal Constitutional Court
• Price adjustment for the “Deutschlandticket” from €49 to €58
• Relief for industry and suppliers, such as capping network charges
• Possibly: Implementation of the European asylum law reform (GEAS) into national law

 

 

Which laws and initiatives will no longer be implemented due to the lack of a parliamentary majority?

 

Most of the legislation and initiatives previously being pushed by the SPD-Green-FDP coalition will not move forward. In some cases, this may be welcomed by the business community, as it avoids additional bureaucratic burdens on companies. For instance, the implementation of the EU directive on working time recording will be halted. In other cases, this stalemate adds further uncertainty and competitive disadvantages. For example, future funding for Germany’s deteriorating rail infrastructure beyond 2025 remains uncertain.

 

The following laws and regulations will not be advanced in the Bundestag:

• Pension reform
• Restrictions on citizen’s income
• Fair wage law
• New powers for the Federal Criminal Police and the Federal Police on data access and analysis
• CO₂ storage law
• Power Plant Safety Act
• Advanced BAföG funding
• Extension of the rent cap beyond 2025
• Family law reform
• Regulation on working time recording
• Employee data protection
• Advertising ban for sweets
• Federal Forest Act
• New animal welfare law
• Relaunch of the Digital Pact for Schools
• Further funding for rail infrastructure
• Second phase of cannabis legalization to allow cannabis shops in pilot regions
• Health care reforms
• Family start-up time
• Democracy promotion law
• Violence assistance law
• Child basic security

Helge Braun (CDU), chair of the Budget Committee, expects that the 2025 federal budget may not be approved until summer next year, which would require the federal government to operate on a provisional budget, significantly limiting government action. The approval of a supplementary budget for 2024 also remains uncertain, and failure could lead to a budget freeze.

 

Will the SPD campaign with Olaf Scholz?

 

It is likely that the SPD will nominate the incumbent Chancellor for the next federal election. Critics (e.g., Munich‘s Mayor Dieter Reiter and members of the Hamburg Parliament) are currently in the minority. The defeat of Kamala Harris in the U.S. presidential election has shown that a “candidate switch at full speed” is not a guarantee of success. By dismissing Finance Minister Christian Lindner, Scholz demonstrat- ed long-missed leadership and strengthened his position among many Social Democrats. Moreover, he holds an advantage over CDU leader Friedrich Merz: unlike Merz, Scholz has previously won elections and held government positions. Stakeholders like Defense Minister Boris Pistorius or party leader Lars Klingbeil, named as potential alternatives, are expected to play key roles if the SPD restructures after a potential election defeat. Pistorius himself stated, “We have a Chancellor, and he is the designated candidate. I see no one in the party wanting to change that.”

 

What can businesses expect from a Chancellor Friedrich Merz?

 

With Germany‘s economic growth still slow and living costs high, esp. for food and rent, economic compe- tence is likely to be a decisive factor in the election. In the late 1990s and early 2000s, Merz gained public recognition for his “tax reform on a beer mat.” After being ousted as parliamentary leader by Chancellor Angela Merkel, he gained global economic experience with BlackRock, the world’s largest asset manager. It is expected that a CDU-led government under Merz would create a more market-oriented environment with a focus on technological openness, aiming to restore Germany’s economic strength.

 

What will change under a CDU-led Government in economic, financial, and social policies?

 

The CDU plans an “Agenda 2030” with clear goals for a competitive, industry-driven economy. CDU leader Merz emphasized that the economic and labor policies must reward hard work rather than penalize it. The CDU rejects the vision of a utopian society with “higher wages, more leisure time, and greater security.” Instead, the party aims to revise social policies, including replacing the welfare benefit Bürgergeld with a new basic income that provides “incentives and encouragement.”

A CDU-led government would also face the same fiscal challenge that led to the downfall of the “traffic light coalition”: funding necessary investments while maintaining support for Ukraine and rising social spending without breaking the debt brake. Prioritization is key to financing necessary measures within a budget of this magnitude, stated CDU politician Jens Spahn, who is considered a potential candidate for the economic or finance ministry.

 

Who will shape future economic and financial policies?

 

A CDU-led government would likely see Merz‘s confidants take on major roles. Former Health Minister Jens Spahn, along with CDU Secretary General Carsten Linnemann, is expected to assume significant responsibilities. There is also speculation about merging the economic and labor ministries, as was the case under Chancellor Gerhard Schröder. The CSU has staked a claim to the agriculture ministry, with oth- er potential cabinet members including CSU parliamentary leader Alexander Dobrindt, former Agriculture Minister Julia Klöckner, climate and energy policy expert Andreas Jung, and Vice Party Leader Sylvia Breher.

 

How does Europe view Germany?

 

At a recent summit of 47 European countries in Budapest, Finnish Prime Minister Petteri Orpo stated that Europe needs a strong and united German government. The political limbo in Berlin comes at an incon- venient time, as hearings for the new EU Commission are underway, and the EU is preparing for a second term under U.S. President Donald Trump. Until Germany’s next Chancellor is decided, French President Emmanuel Macron and EU Commission President Ursula von der Leyen are expected to play key roles. Macron has warned that Europe faces a “mortal danger” if it fails to prepare for the future. Merz has signaled that he would focus on Germany’s interests, aiming to elevate Germany from a “sleeping middle power” to a “leading middle power.”

 

How do economic experts assess Germany’s situation?

 

The economic policies of Donald Trump are expected to create challenges for Germany and the EU, particularly through his protectionist agenda targeting China and possibly Europe. Clemens Fuest, President of the ifo Institute, recommends preparing for higher import tariffs and trade restrictions. In turbulent times, companies need reliability—a responsibility of any government. The collapse of the “traffic light coalition” was thus inevitable. For the remainder of the year, Chancellor Scholz has proposed reforms that are welcomed by the business community.

 

Moritz Schularick, President of the Kiel Institute for the World Economy, emphasizes the need for substantial additional investments to support Ukraine and address security challenges. The necessary funds can only be obtained through borrowing, making this economically sensible.

 

What political scenarios are feasible?

 

Current polls suggest that two coalitions could gain a majority: a grand coalition of CDU/CSU and SPD or a CDU-Green alliance. However, CSU leader Markus Söder has ruled out forming a government with the Greens, making this coalition unlikely for now. With the FDP struggling to climb the five-percent threshold, it remains to be seen whether they will benefit from their ousted leader’s recent exit from the coalition.

 

How will the U.S. power shift affect German domestic policy and the upcoming election?

 

Both Chancellor Olaf Scholz and his opponent Friedrich Merz are confident about finding solutions with U.S. President Donald Trump. Scholz stated, “I am never naive but always a bit unafraid.” He hopes for continued transatlantic cooperation, emphasising, “One dances with those in the hall.” Merz, for his part, aims to prioritise German interests in foreign policy, working toward balanced agreements that benefit both nations.