As one of Germany’s largest trading partners, China has shown great concern about changes in the German situation. German manufacturing relies on the Chinese market as its main export destination, while importing key raw materials and technical components from China. As Germany falls into a political crisis, many Chinese companies are worried that the supply chain may be interrupted, thus affecting bilateral trade flows. The Chinese government has adopted a pragmatic and cautious attitude, emphasizing the stability of bilateral relations while criticizing Germany’s ineffective internal economic management. The Chatham House pointed out that Germany’s political uncertainty may force China to reassess its investment strategy in German industry, while taking advantage of this opportunity to further expand its industrial and technological influence in the international market.

Russia is trying to see the disintegration of the German government as an opportunity to weaken the overall unity of the European Union. The Kremlin media quickly spread news of the political chaos in Germany, intending to promote the internal fragility of the European Union and weaken Germany’s ability to provide military and financial assistance to Ukraine. According to Xinhua News Agency, Russian officials have publicly emphasized that Germany’s current crisis is “the consequence of its excessive interference in Ukrainian affairs and disregard for domestic economic needs.” Russia hopes to weaken Europe’s continued support for Ukraine through such propaganda, while gaining more voice for itself on energy issues.

In Asia, important economic partners of Germany such as Japan and South Korea have expressed concerns about the current situation. Germany is an important cooperation partner of the two countries in high-end manufacturing and technology research and development, especially in the fields of automotive parts and new energy technologies. However, due to the uncertainty of German domestic policies, these cooperation projects may face the risk of delays or interruptions. For example, Japanese companies have expressed concerns about the stability of the German automotive industry because political turmoil may affect German companies’ research and development investment in electric vehicles and green technologies. South Korea is concerned about whether Germany can still play a key role in the cooperation of the global chip supply chain, especially in the context of Germany’s plan to increase semiconductor investment.

From the perspective of the global market, the political crisis in Germany has further weakened the confidence of international investors in European assets, causing funds to flow to more stable markets. Bloomberg reported that sovereign wealth funds in Asia and the Middle East have begun to reassess their investment plans in Germany, especially in the fields of infrastructure and green industries.

The sudden collapse of Germany’s coalition government in November 2024 revealed deep-seated political, economic, and social tensions that had been brewing for years. The immediate trigger was Chancellor Olaf Scholz’s decision to dismiss Finance Minister Christian Lindner, leading the Free Democratic Party (FDP) to withdraw from the coalition, effectively dismantling the “traffic light” alliance. NPR reported that this crisis stemmed from irreconcilable differences among the Social Democrats (SPD), Greens, and FDP over how to address Germany’s economic downturn. While the SPD and Greens advocated for increased public investment to stimulate growth, the FDP insisted on strict adherence to the constitutional “debt brake,” opposing further borrowing.

The “debt brake” was central to the crisis. This constitutional rule limits annual public borrowing to 0.35% of GDP, a policy praised for fiscal discipline but criticized for constraining economic recovery. According to The European Conservative, the SPD and Greens pushed to temporarily suspend the debt brake to address a €9 billion budget shortfall and stimulate the economy, but Lindner and the FDP strongly opposed this, citing long-term fiscal risks. This impasse over the 2025 budget became the direct catalyst for the government’s collapse, as noted by Xinhua.

Germany’s economic struggles added further strain to the coalition. Reuters highlighted that Germany’s economy is expected to shrink by 0.1% in 2024, marking the second consecutive year of contraction. High energy prices, weak global demand, and increased competition from China have significantly weakened the country’s industrial base. The automotive industry, a cornerstone of Germany’s economy, has been hit particularly hard. Chatham House noted that German car manufacturers like Volkswagen and BMW have announced factory closures and layoffs, as they struggle to compete with cheaper Chinese electric vehicles. These issues underscore the limitations of Germany’s traditional economic model, which relied on low-cost energy and high-value exports.

Dysfunction within the coalition further exacerbated the crisis. The three parties rarely reached consensus on major policy issues, with Scholz, Lindner, and Green leader Robert Habeck often failing to coordinate effectively. Energy policy was a key point of contention. Scholz proposed lowering industrial energy costs to boost manufacturing competitiveness, but Lindner criticized the plan as fiscally irresponsible. Such disagreements delayed policy decisions and eroded public trust in the government.  External factors also played a significant role in Germany’s political instability. The country’s reliance on cheap Russian energy and access to the Chinese market has become increasingly unsustainable in the face of geopolitical tensions. The end of Germany’s old economic model left the coalition struggling to craft a new strategy. Former U.S. President Donald Trump’s possible re-election has further heightened uncertainty. The Associated Press highlighted that Trump’s threat of high tariffs on European imports poses a severe risk to Germany’s export-driven economy.

Germany’s foreign policy priorities also drew domestic criticism. Scholz’s government has been a leading supporter of Ukraine, providing significant military and financial aid, second only to the United States. However, this commitment has placed additional strain on Germany’s budget. According to reports, many Germans felt that the government neglected domestic issues, such as rising living costs and stagnant wages, in favor of foreign aid. The Associated Press noted that this discontent has fueled support for the far-right Alternative for Germany (AfD), which now polls at 19%, up from 10.4% in 2021, according to The New York Times.

The roots of Germany’s political crisis also lie in its structural economic challenges. The country’s traditional manufacturing advantages are waning, while investments in digitalization and green industries remain insufficient. The European Conservative observed that Germany’s welfare system, which automatically expands over time, has exacerbated fiscal pressures, and the coalition failed to propose effective reforms. These intersecting issues have left the government unable to balance domestic and international priorities.

In summary, the collapse of Germany’s coalition government was the result of multiple overlapping factors. Internal policy disagreements, economic stagnation, and external pressures exposed the fragility of the ruling alliance. The government’s inability to agree on a long-term strategy further undermined public confidence, as The New York Times pointed out. This political crisis not only has profound implications for Germany but also threatens to reshape Europe’s political and economic landscape.

The collapse of Germany’s coalition government has disrupted the leadership of Europe’s largest economy at a time of heightened geopolitical and economic challenges. Germany, often regarded as the EU’s economic engine and political stabilizer, is now facing both domestic turmoil and reduced influence in European decision-making processes. The consequences of this political crisis are already reverberating across the region.

First, Germany’s political instability threatens to weaken the EU’s economic recovery efforts. Reuters reported on November 13, 2024, that Germany’s economy, which has historically driven the EU’s overall growth, is expected to shrink by 0.1% this year. This contraction, alongside a manufacturing slowdown and high energy prices, undermines the EU’s ability to coordinate recovery measures, particularly its €750 billion Next Generation EU recovery fund. With Germany distracted by its internal crisis, other member states may struggle to fill the leadership void required to ensure the fund’s effective implementation.

Germany’s internal disagreements over fiscal policy are also influencing EU-wide financial strategies. According to The European Conservative, the ongoing debate around Germany’s “debt brake” mirrors broader tensions within the EU over fiscal discipline versus economic stimulus. While southern European nations, such as Italy and Spain, advocate for more flexible borrowing rules to boost growth, Germany’s historically conservative fiscal policies have often limited such efforts. The collapse of Germany’s government may signal an opportunity for the EU to re-evaluate its fiscal frameworks, but the absence of strong German leadership complicates consensus-building.

The Franco-German partnership, often referred to as the “engine” of the EU, has also been weakened by Germany’s political crisis. Scholz’s diminished political influence leaves French President Emmanuel Macron without a strong partner to navigate critical EU decisions, including climate policy, defense cooperation, and financial reform. With Macron also facing domestic challenges, the EU risks losing its traditional leadership duo at a critical juncture, creating a vacuum in European policymaking.

Furthermore, Germany’s crisis could exacerbate divisions within the EU over its response to external threats. The former U.S. President Donald Trump’s re-election poses a significant challenge to transatlantic relations, with potential tariffs on European imports threatening key industries, including Germany’s automotive sector. Without a functioning German government to spearhead negotiations with Washington, the EU may find it harder to present a united front against such policies, potentially weakening its economic and strategic position.

Germany’s collapse also impacts the EU’s support for Ukraine. Xinhua noted that Germany has been one of the largest financial and military aid providers to Ukraine, second only to the United States. However, the lack of a cohesive German government raises doubts about its ability to maintain this support. The upcoming EU budget negotiations, which require increased contributions for Ukraine, may face delays or opposition in the absence of German leadership. This uncertainty could weaken the EU’s ability to respond to the ongoing conflict and support its eastern neighbors effectively.    

The rise of far-right political forces in Germany adds another layer of complexity to the EU’s challenges. According to The New York Times, the far-right Alternative for Germany (AfD) is polling at 19%, making it the country’s second-strongest party in some regions. If the AfD continues to gain traction, its anti-EU and anti-immigration stance could influence Germany’s future policies, creating further divisions within the bloc. This trend mirrors similar developments in other EU countries, such as Italy and France, where far-right parties have gained significant ground, signaling a broader challenge to European integration.

Despite these challenges, some analysts see potential opportunities arising from Germany’s crisis. Reuters suggested that the collapse of the coalition might open the door for a more flexible fiscal policy, which could stimulate both the German and European economies. Increased government spending in Germany could have positive spillover effects on neighboring countries, boosting demand and investment. However, this optimism is tempered by the political uncertainty surrounding Germany’s upcoming elections, which could delay meaningful reforms.

Overall, Germany’s political crisis has far-reaching consequences for the EU. It undermines economic recovery efforts, weakens traditional leadership partnerships, and complicates responses to external threats. While there may be opportunities for fiscal reform and increased economic cooperation, the EU faces significant risks if Germany’s instability continues. The next German government will need to prioritize both domestic stability and its role as a European leader to restore confidence and cohesion within the bloc.

In the wake of its government’s collapse, Germany faces the dual challenge of political instability and economic stagnation. The current minority government, led by Chancellor Olaf Scholz, has limited capacity to implement significant reforms. Early elections scheduled for February 2025 may provide an opportunity for new leadership, but the path to addressing Germany’s structural issues remains unclear.

One of the key priorities for any incoming government will be reforming the fiscal framework. The “debt brake,” while designed to ensure fiscal discipline, has been criticized for restricting public investment in critical areas such as digital infrastructure and green technologies. A potential reform of the debt brake could allow for more flexible borrowing to fund long-term growth initiatives, however, Friedrich Merz, the leader of the Christian Democrats (CDU) and a frontrunner for chancellor, has expressed conditional support for such reforms, emphasizing the need to focus on investment rather than welfare spending.

Germany’s energy policy will also be a major focus. The country’s reliance on expensive imported liquefied natural gas (LNG) has driven up industrial costs and weakened its manufacturing base. Chatham House noted that future policies must prioritize diversifying energy sources, accelerating renewable energy projects, and reducing dependency on volatile international markets. Scholz’s previous proposals to cap industrial energy costs were blocked by FDP opposition, but a new government may revive these plans to support German industries and preserve jobs.

The automotive sector, a cornerstone of Germany’s economy, requires urgent attention. Reuters highlighted that competition from cheaper Chinese electric vehicles (EVs) has forced German car manufacturers to close factories and lay off workers. Industry leaders are calling for government support in the form of subsidies for EV production and incentives for domestic R&D. Such measures, if implemented effectively, could help Germany regain its competitive edge in the global market.

Germany’s role within the European Union will also shape its future. As one of the largest contributors to the EU budget and a key advocate for Ukraine, Germany’s political instability has raised concerns about its ability to meet its commitments. According to AP, maintaining financial and military aid to Ukraine will be essential for Europe’s collective security, but this could strain Germany’s already tight budget. Additionally, the country must navigate EU-wide negotiations on fiscal policy, where it has traditionally advocated for financial discipline but now faces pressure to adopt more growth-oriented approaches.

Domestically, addressing public dissatisfaction will be critical to restoring political stability. The New York Times reported that rising support for the far-right Alternative for Germany (AfD) reflects widespread frustration with economic challenges and government dysfunction. Any new administration will need to prioritize social policies, including measures to reduce living costs and address income inequality, to regain public trust and counter the appeal of populist movements.

Looking ahead, Germany’s next government will inherit a deeply divided political landscape and a fragile economy. Whether led by the CDU, SPD, or a new coalition, it must strike a balance between short-term crisis management and long-term structural reforms. The Associated Press noted that a failure to address these issues could lead to further economic stagnation and political instability, not just in Germany but across the European Union. However, with its strong industrial base, highly skilled workforce, and central role in Europe, Germany retains the potential to emerge from this crisis stronger—if its leaders can navigate the challenges ahead.

One of the immediate concerns is Trump’s threat to impose tariffs of up to 20% on European imports, including automobiles. These tariffs could deliver a significant blow to Germany’s automotive sector, a critical pillar of its economy. The German car industry already struggling with competition from Chinese electric vehicles and high energy costs, could face further losses in its largest non-European market. Such tariffs would not only affect manufacturers like Volkswagen and BMW but also ripple through the broader European supply chain, impacting suppliers and related industries.

Germany’s dependency on exports makes it particularly vulnerable to shifts in U.S. trade policy. Chatham House highlighted that Germany’s traditional economic model, which relies on robust trade relationships, has become increasingly unsustainable in a world of rising protectionism. Trump’s unilateral approach to trade may force Germany to re-evaluate its dependence on the U.S. market and diversify its export destinations, a process that could take years and involve significant costs.

The geopolitical implications of Trump’s return also weigh heavily on Germany and the EU. During his first presidency, Trump frequently criticized NATO and threatened to reduce U.S. military presence in Europe. According to NPR, Germany’s defense spending and military modernization efforts have fallen short of NATO’s 2% GDP target, making it a frequent target of Trump’s rebukes. A reduced U.S. commitment to European security would pressure Germany and other EU countries to increase their defense budgets significantly. However, as Xinhua pointed out, Germany’s current fiscal constraints leave little room for such increases, potentially weakening Europe’s collective security posture.

Furthermore, Trump’s potential rollback of U.S. support for Ukraine could have far-reaching consequences for Germany’s foreign policy. Germany has been one of Ukraine’s most significant supporters, both financially and militarily, second only to the United States. The Associated Press reported that any reduction in U.S. aid would increase the burden on Germany and the EU to sustain Ukraine’s defense and reconstruction efforts. This would exacerbate existing budgetary pressures, further complicating Germany’s fiscal challenges.

Domestically, Trump’s re-election may also deepen political divisions within Germany. The rise of the far-right Alternative for Germany (AfD) reflects a growing skepticism toward globalization and transatlantic alliances among parts of the German electorate. The New York Times noted that the AfD’s anti-EU rhetoric and opposition to military spending align with Trump’s isolationist agenda, potentially emboldening similar sentiments within Germany. This dynamic could complicate efforts by the next German government to maintain strong ties with both the EU and the United States.

Despite these challenges, some analysts see potential opportunities. Reuters suggested that Trump’s aggressive trade policies might prompt Germany and the EU to accelerate plans for greater economic self-sufficiency and regional integration. A more unified European approach to trade, defense, and energy policy could reduce dependence on the United States and strengthen the EU’s position on the global stage. However, achieving this would require overcoming significant political and economic hurdles, particularly given Germany’s current instability.

Trump’s re-election introduces new risks for Germany and the EU at a time when both are already grappling with internal crises. The next German government will need to navigate a complex international landscape, balancing the need for transatlantic cooperation with the imperative to protect its economic and strategic interests. While Trump’s presidency poses significant challenges, it also underscores the urgency for Germany and the EU to pursue greater independence and cohesion in the face of an increasingly unpredictable global order.

The collapse of Germany’s coalition government marks a turning point for Europe’s largest economy, exposing deep-rooted challenges in its political and economic structures. From unresolved disputes over fiscal policy to the erosion of its traditional export-driven economic model, Germany now stands at a crossroads. This political crisis not only weakens Germany’s domestic stability but also disrupts the European Union’s ability to navigate pressing global and regional challenges.

As Germany prepares for early elections in February 2025, the country’s next government will inherit a host of urgent issues. Addressing the fiscal impasse caused by the “debt brake” will be a critical priority. While some leaders, like Friedrich Merz of the Christian Democrats, have suggested conditional reforms to allow increased investment, the debate over balancing fiscal discipline and economic stimulus will likely continue to dominate the political agenda.

Germany’s political instability also leaves the European Union vulnerable. With its Franco-German leadership engine stalled and far-right movements gaining traction across the bloc, the EU faces increasing difficulty in addressing collective challenges such as climate policy, defense spending, and support for Ukraine. As The New York Times noted, Germany’s collapse underscores the broader pressures on European integration at a time when unity is most needed.

Externally, former U.S. President Donald Trump’s re-election further complicates Germany’s future. The Associated Press highlighted that Trump’s potential protectionist policies and reduced support for NATO could strain Germany’s economy and defense capabilities, forcing it to take on a more prominent leadership role in Europe. This shift would require not only increased investment in domestic industries but also a renewed commitment to European solidarity. Despite these challenges, Germany retains significant strengths that could help it navigate this crisis. With a highly skilled workforce, robust industrial base, and a central role in the EU, Germany has the potential to emerge stronger if its leaders can unite around a coherent vision for the future. Achieving this will require addressing public discontent, fostering political consensus, and implementing bold economic reforms.

In the months ahead, Germany’s political trajectory will significantly influence not only its domestic recovery but also the broader stability of the European Union. The stakes are high, but Germany’s history of resilience offers hope that it can overcome its current challenges and once again play a leading role in shaping Europe’s future.

By Chenhao Zhan