Ukraine war leaves Germany’s ruling coalition in ‘permanent crisis mode’

It was to be Germany’s most progressive government in a generation. One year on, those lofty ambitions have been eclipsed by a war in Europe that has plunged the country into an energy crisis, wreaked havoc on its public finances and radically reordered its policy agenda.

Olaf Scholz was sworn in as German chancellor last December, heading an unprecedented three-way coalition between the Social Democrats, Greens and the Free Democrats that promised a “fresh start” after Angela Merkel’s 16-year reign. Its 141-page coalition agreement was titled: “Dare more progress.”

But Russia’s invasion of Ukraine in February threw a spanner in the works. “They promised a new awakening — but there’s not much of that left,” said Andrea Römmele, professor of communication in politics at the Hertie School in Berlin. “Instead they’re stuck in a kind of permanent crisis mode.”

A former mayor of Hamburg, Scholz had promised the “biggest industrial modernisation of Germany in more than a hundred years”. The country would, he pledged, green its economy and become a “pioneer in climate protection”.

It would exit coal more quickly than planned, vastly increase wind and solar power and put 15mn electric cars on the roads by 2030. There were plans to build 400,000 flats each year, liberalise immigration rules and legalise cannabis.

Instead, most of the government’s energy has been expended keeping the lights on. Since Russia’s decision to reduce gas exports to Europe during the summer, Scholz’s priority has been to ensure alternative supplies and avert the prospect of blackouts and gas rationing this winter.

In that he has largely succeeded. “Germany is winter-proof and safeguarded against crises,” the chancellor told MPs last month.

The government has spent billions on improving Germany’s energy security, building an import terminal for liquefied natural gas in record time, ensuring gas reservoirs are 100 per cent full and taking control of two struggling gas importers, at a massive cost to the public purse.

Scholz also pushed through €300bn of emergency aid to cushion the impact of higher energy costs on companies and households, breaking the previous record for state support set during the pandemic — when he was finance minister.

He also fulfilled an election promise to raise the minimum wage, reformed Germany’s widely-hated system of jobless benefits and created a €100bn investment fund for the Bundeswehr, pledging to reverse years of underfunding of the armed forces.

“The government succeeded in ensuring social peace, it made sure the aid packages reached all social groups and no one was left out in the cold,” said Uwe Jun, a political scientist at the University of Trier. “That meant Germany was spared the kind of big strikes and social upheaval you’ve seen in other countries, like the US and UK.”

But all this came at a cost. The new government is taking on about half a trillion euros of new debt — a particularly bitter pill for one of the coalition partners, the fiscally conservative Free Democrats (FDP). And because the FDP insists that Germany reinstate its “debt brake” next year, the constitutional cap on new borrowing suspended during the pandemic, much of the crisis spending is being channelled through off-balance sheet vehicles — a tactic many economists find questionable.

“In the long term, all these shadow budgets will lead to a palpable increase in Germany’s government debt,” said Jun.

The huge rise in expenditure may have been hard for the FDP to stomach. But the Greens have also had to make painful compromises. They agreed to the reopening of mothballed coal-fired power stations and a three-and-a-half-month extension to the life of Germany’s last remaining nuclear reactors.

“We suddenly found ourselves having to renegotiate issues fundamental to our parties. while also carrying on the regular business of government,” Ricarda Lang, the Greens co-leader told German radio. “It was like open-heart surgery.”

Sometimes these renegotiations provoked tensions that threatened government stability. In October, Scholz was forced to assert his authority as chancellor — a rare event in German politics — to resolve a dispute over the future of nuclear power between the Greens and FDP.

The two parties also locked horns over a controversial levy on gas consumers, designed to bailout gas importers such as Uniper, which was pushed through by the Green-controlled economy ministry. The conflict dragged on until Uniper was nationalised and the levy idea scrapped.

More tension could be in the pipeline as the FDP’s electoral fortunes continue to wane. It was kicked out of coalition governments in two important states this year and in a third did not even scrape together enough votes to make it into the regional parliament.

FDP leader Christian Lindner, who is also finance minister, insisted after these defeats that the party should raise its profile in government. “The FDP will be the party that sticks to its red lines, come hell or high water,” said Römmele. “The Greens are much more pragmatic but the FDP is now in permanent campaign mode.”

It is not just the FDP that is suffering. A survey this month by pollsters Insa for Bild am Sonntag showed backing for the SPD, Greens and FDP together was at 44 per cent, down from 52 per cent at last year’s election. So if voters went to the polls today the “traffic-light coalition” — named after the parties’ traditional colours — might not be returned to power.

The opposition Christian Democrats (CDU) blame Scholz’s lack of leadership. “The chancellery’s task is to bring the government parties together, and it’s not doing that,” said Mario Czaja, the CDU general secretary. “They keep blaming each other in public when things go wrong.”

Business leaders hope the coalition’s second year in office will deliver more clarity to government policy. “[It’s] got to switch as quickly as possible from crisis mode to actually building something,” said Siegfried Russwurm, head of the BDI, the main German business lobby. The coalition agreement negotiated last year was marked by “the ambition to change our country . . . that can’t just remain lip service”.

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