Can the German government survive its 'ultimatum autumn'?

The last three state elections were dramatic for Olaf Scholz's coalition of Social Democratic Party (SPD), the Greens and the neoliberal Free Democratic Party (FDP) — the results appeared to echo the mood of the country. Never before in the history of postwar Germany has a federal government been as unpopular as this coalition.

So what happens next? In the week following the state elections, the Greens have changed their leaders and are now trying to reshape their party policies. The center-left Social Democrats are relieved that they at least won the election in Brandenburg, and intend to carry on with their work without any more trouble, but with a stronger emphasis on social issues.

And the FDP, the smallest member of the coalition and the one whose ideological inclinations least suits that of the other two, is also looking to refine its focus. By threatening to pull out of the coalition, the party is hoping to make its own, more neoliberal agenda more visible.

Breaking up the coalition is currently seen as a bad move, as a federal election could be disastrous for all three parties. Currently, all three combined are polling lower than the largest opposition force, the center-right Christian Democratic Union (CDU) and their Bavarian sister-party, the Christian Social Union (CSU).

Pension dispute within the coalition

And yet, the FDP is making its threats all the same in the hope of exerting as much influence as possible in government while it can.

The budget, the economy, migration, pensions — on many of the legislative projects on the agenda, the two more left-wing parties, the SPD and the Greens, have different views than the economically liberal FDP. The party's leader, Finance Minister Christian Lindner, has warned that the coalition will be judged by its performance — "and that's also how we as the FDP will measure it."

Lindner has called for an "autumn of decision-making" and issued an ultimatum. Can this work and does the coalition still have a chance?

Now, just a week after the last of the three state elections in eastern Germany, conflicts have flared up again. The parties debated pensions in the Bundestag, the parliament, last Friday — a key issue for the SPD, which wants to keep the pension rate at 48% of average income until 2039.

Germany's state pensions are financed through premiums, as well as subsidies from the state. Currently, there are 21 million pensioners in Germany, but demographic changes mean that fewer and fewer contributors will have to support more and more pensioners over the coming years.

That is why the FDP wants more private pension plans and a restructuring of the pension system into a market-based pension program, along the lines of the Swedish model. However, there is still a long way to go, and the SPD wants to ensure that every pensioner has enough money to get by in retirement.

"For most people in this country, the most important and, for many people, the only security in old age is the statutory pension," Labor and Social Affairs Minister Hubertus Heil told the Bundestag, before insisting that the government must offer more security.

Social security contributions at 40%

In fact, after lengthy debates in spring, FDP leader Lindner did agree to a pension package that would also include the introduction of market-based pensions — but now his party has voiced its opposition.

"Stabilizing pensions cannot mean that we simply keep increasing the contributions for the working middle class and young people," said Johannes Vogel, deputy leader of the FDP faction, in the Bundestag.

He added that social security contributions already account for 40% of wages and salaries in Germany. "The fact that we are world champions when it comes to taxes and fees is already a problem for Germany as a place to do business," he said, adding that his party would not approve the proposed legislation as it stands.

For the SPD, this is just one more slap in the face. Party co-leader Lars Klingbeil has insisted that the agreement be honored. "We have to stick to what we agreed. I don't quite understand why the FDP faction is now rebelling against its own party leader," Klingbeil told the dpa news agency.

Disputes are also expected over the other matters that the federal government still needs to address. The biggest of these is next year's budget. That is currently being discussed in the Bundestag, with a deadline of the end of November, and its current draft still has a funding gap of around €12 billion ($13 billion).

Unconstitutional budget?

To plug the hole, this amount is being budgeted as "general underspending." In other words, the ministries are expected somehow to cut this amount from their operating budgets in the coming year. Experts at a hearing in the Bundestag warned that this was unconstitutional.

What's more, the gap may turn out to be even larger. A tax assessment at the end of October will clarify how much revenue can be anticipated in the coming year. Given Germany's economic downturn, the government could be in for a nasty surprise.

The government is also planning a "growth initiative" of 49 measures to help out the private sector. But here, too, different political schools of thought are colliding. The SPD and Greens are in favor of government intervention and financial aid, but the FDP wants to stick firmly to Germany's constitutionally-enshrined "debt brake" and refuses to let the government to take out new loans under any circumstances.

What's more, the government has yet to present any draft legislation for some of the key points of the growth initiative, leading the FDP to suspect that the SPD and Greens want to slow down its implementation. Meanwhile, some economists are doubtful whether the initiative would even produce the desired effect: Some say a 0.5% increase in economic growth next year is overly optimistic.

All this means that the coalition is entering an "autumn of decision-making" as divided as it was in the summer. It remains to be seen whether the FDP's ultimatum will actually last until the beginning of winter. The passing of the budget is likely to be the breaking point. The final meeting of the Bundestag's budget committee is scheduled for November 14, when final decisions are to be made.

If the FDP is unable to accept the outcome and pulls out of the coalition, it would not automatically mean the end of the federal government and a new election. Chancellor Scholz could continue to govern with his SPD and the Greens in a minority. Though they would not have a majority to pass legislation in parliament, the parties would have time until the next general election in September 2025 — in hopes of winning back voters.

This article was originally written in German.

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