Chancellor Olaf Scholz fired his finance minister on Wednesday, effectively ending his three-party ruling coalition and destabilizing his center-left government just as the election of Donald J. Trump in the United States presented Europe with new economic and security challenges.
“I would have liked to have spared you this difficult decision,” said Mr. Scholz during an impromptu news conference in the chancellery on Wednesday evening. “Especially in times like these, when uncertainty is growing,” he added.
Mr. Scholz vowed to keep governing until the end of the year and then demand a confidence vote in parliament in January, which he may likely fail. That would open the way to early elections, possibly in March, for only the third time since the Federal Republic was founded in 1948.
The trouble in Berlin leaves the European Union evermore rudderless at a particularly difficult time. France’s government is in a crisis after elections there this year yielded a deadlocked parliament, and Russia has made important advances on the battlefield in Ukraine and continues to threaten Europe broadly.
Now Europe faces the possibility of a trade war with the United States and a weakening of the NATO alliance — both of which Mr. Trump has threatened — as Germany, its most populous country, becomes mired in political instability as well.
The collapse of the coalition in Germany came after the leaders of the three parties — Mr. Scholz’s Social Democrats, the left-leaning Greens and the pro-business Free Democrats — had mostly stopped talking to each other in recent weeks over widening disputes in negotiations for a new federal budget.
The three leaders spent the last three days in talks aimed at salvaging the coalition. Finally, Mr. Scholz grew so exasperated with the demands from Christian Lindner, the leader of the Free Democrats and his finance minister, that he decided he had to go, according to Mr. Scholz.
The coalition, which has governed Germany since the former chancellor, Angela Merkel, left office in 2021, was an uneasy set of political bedfellows from the start. It was the first three-party coalition since the early 1960s, one of the reasons, many in the government say, for its instability, frequent leaks and, at times, paralysis.
The coalition’s collapse is stunning for a country long known for plodding and predictable consensus that avoided the political gyrations of some of its more volatile European partners. It may signal a new era of political instability for Germany, as populist parties on the far right and far left gain more popularity on a fracturing political landscape.
Speculation about a collapse of the coalition had grown since last week after Mr. Lindner wrote a position paper, leaked to the news media, that challenged the progressive fiscal policies of his two left-of-center coalition partners.
Many of his proposals, like the end to national climate policies or cuts to social services, appeared designed to antagonize them. Experts saw the paper as Mr. Lindner’s attempt to get himself pushed out of the coalition without having to leave it himself. The opposition, which has been calling for an end to the coalition, called it the “divorce document.”
Mr. Scholz and Robert Habeck, Germany’s economy minister and member of the Greens party, tried to hold the coalition together. Calling for “pragmatism” in a post on social media on Monday, Mr. Scholz continued: “Coalition governments can sometimes be challenging. But the government is elected, and there are issues that need to be resolved.”
Mr. Habeck sought to keep Mr. Lindner in the government by offering him several billion euros earmarked as a subsidy for a planned Intel factory to help balance the budget.
“This is the worst time for the government to fail,” Mr. Habeck told reporters after making the overture on Monday.
On Wednesday Mr. Scholz announced that his Social Democrats would govern with the Green Party as a minority government until at least the end of the year. They will need to secure parliamentary majorities on a case-by-case to pass any laws, which would hobble the government.
On some issues — notably aid to Ukraine, rebuilding the military and cracking down on immigration — they might be able count on the support of the opposition Christian Democrats, who have similar views on them.
“Germany is Europe’s biggest economy and the biggest contributor to the E.U. budget; they need to have certainty,” said Sudha David-Wilp, the Berlin-based regional director of the German Marshall Fund, a think tank. “And a minority government means instability for the country and its partners in Europe,” she added.
Ultimately such an arrangement can only work with the tacit support of the conservative Christian Democratic Union, or C.D.U., the biggest opposition party that is leading opinion polls to win the next election.
“We cannot afford this unstable government a single day longer,” Carsten Linnemann, the party’s secretary general, told the German tabloid Bild earlier this week.
The Scholz coalition had billed itself as a restart from the sleepy Merkel years. The partners successfully managed pressing problems early in its term after Russia invaded Ukraine in 2022 and Germany stopped importing Russian gas.
But a ruling by the country’s highest court in 2023 forced the government to make drastic cuts in the budget, leading to strife among the partners over the limit on borrowing that is anchored into the constitution.
The final break comes against the backdrop of a stagnant German economy, which is expected to contract by 0.2 percent in 2024, the second year in a row that Germany has stagnated. The country is the weakest member of the Group of 7 and among nations using the euro currency.
In a sign of deepening woes, Volkswagen, Germany’s largest industrial employer, is threatening major job cuts and factory closures as it struggles to return its flagship brand to profitability.
With Mr. Lindner’s insistence on economic reforms and his exit from the government, he appears to have picked the timing of his election campaign.
His Free Democratic Party has been struggling to break 5 percent support in the polls, the threshold for entering parliament. Leaving the government on a principled stance could allow Mr. Lindner to pick up voter support for the next election whenever it is held.
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