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From left to right, Prime Minister of Bavaria Markus Soeder, Chairman of the CDU Friedrich Merz, Heads of the SPD Lars Klingbeil, and Saskia Esken arrive at a press conference after successful coalition negotiations in Berlin, Germany, on April 9, 2025.
Germany’s Friedrich Merz strikes grand coalition deal
Germany’s leading establishment parties reached a grand coalition deal on Wednesday, bringing Europe’s largest economy a step closer to having a formal government amid severe domestic and global challenges.
The timeline: The deal between the conservative CDU/CSU, led by likely-Chancellor Friedrich Merz, and their rival Social Democrats, or SDP, requires formal approval in the next several weeks. The new government should be in place by May.
They’ve got their work cut out. The Trump administration’s America First approach is forcing Berlin to increase defense spending while also tending to a sluggish economy that will be further maligned by US tariffs. Meanwhile, social tensions over the impact of mass immigration persist.
Plus: These parties aren’t popular. The CDU placed first in the February elections but has shed support since then, partly because it struck a deal with the SDP to skirt long-standing debt limits to fund a big defense spending boost. That deal would not have passed the incoming Bundestag, given the strong electoral performance of the anti-establishment parties.
The numbers don’t lie: Polls already show the far-right, anti-immigration AfD, which Merz has sworn not to work with, is now – for the first time – the most popular party in Germany.African National Congress (ANC) members of parliament react after South African lawmakers passed the budget's fiscal framework in Cape Town, South Africa, April 2, 2025.
Budget clash puts South African government on brink of collapse
The second largest party in South Africa’s coalition, the business-friendly Democratic Alliance, launched a legal challenge on Thursday to block a 0.5% VAT increase in the country’s new budget, raising concerns that the fragile government could collapse.
The background: Absent the support of their coalition partner, the ruling African National Congress on Wednesday relied instead on support from smaller parties to narrowly pass a budget framework.
The ANC and the center-right DA, historical rivals, agreed to work together after last year’s elections, when the ANC failed to win a majority for the first time since it entered government in 1994, after the fall of apartheid.
Your call, DA. The lawsuit is unlikely to derail the budget, so the party must decide if it wants to stay in government despite its misgivings. Without the DA, the ANC would hold exactly half of the legislature’s 400 seats. Investors view the DA as a key source of market-friendly policy discipline.
It’s a dilemma. Experts say that if the DA bolts, it will lose the chance to shape key legislation, such as the controversial Expropriation Act, a land reform bill, but staying would mean facing political humiliation after they voted against the budget.
Following the end of the "traffic light" coalition, Federal Chancellor Olaf Scholz has submitted a request to the president of the Bundestag for a vote of confidence in the Bundestag.
Viewpoint: Germany seeks new political leadership to address economic crisis
Faced with a political impasse preventing action on acute economic and geopolitical challenges, the German parliament will hold a vote of confidence in Chancellor Olaf Scholz’s government on Dec. 16. Based on an agreement among the main parties in the Bundestag, lawmakers will deliver a vote of “no confidence,” paving the way for snap elections on Feb. 23.
We asked Eurasia Group expert Jan Techau to explain what set off this chain of events and where it is likely to lead.
What has prompted this vote of confidence?
The chancellor called the vote after long-simmering tensions finally brought down the ruling coalition of Scholz’s Social Democrats, the pro-business Free Democrats, and the Greens. There are big ideological divides among these three parties, and it was never an easy marriage. Initially, they could paper over these divides with money for each party’s pet projects. But a little over a year ago, the Constitutional Court struck down large parts of the 2024 budget, saying they were financed with an illegal repurposing of unused pandemic-relief funds. That set up endless negotiations and finally a showdown over the 2025 budget, which ended with Scholz firing the finance minister, the Free Democrats’ Christian Lindner, and the subsequent collapse of the coalition agreement.
So, it sounds like fights over spending priorities are the main issue shaping German politics?
They are a symptom of a broader economic crisis that has undermined competitiveness, growth, and tax revenue. The country has high labor and energy costs and a high reliance on exports, especially to China. For a long time, China bought nearly everything that Germany produced, from machinery to cars and chemicals. But China has developed its own industries and is no longer just a customer but increasingly an aggressive competitor making many of the same goods. To put it simply: Germany is a high-cost country reliant on exports whose main customer no longer wants to buy all its stuff.
How are geopolitical issues shaping the domestic debate?
All these economic problems come at a time of mounting geopolitical challenges. Donald Trump’s election victory in the US is expected to bring increased pressure on Germany and other European countries to harden their stances against China. Trump could force Germany to choose between its economic reliance on China and its security reliance on the US. At the same time, you have the war in Ukraine and Russia’s hostility to Germany and the rest of the West that has prompted significant – and very costly – efforts to rebuild Europe’s defense capabilities.
What seems like the most likely outcome of the February elections?
The conservative Christian Democrats, led by Friedrich Merz, have a substantial lead in the polls. It seems unlikely that any other party will be able to close the gap by Feb. 23. They will need to form a coalition government (one-party parliamentary majorities and minority governments are very uncommon in the German system), probably with the Social Democrats and maybe a third party as well. One key watchpoint will be the performance of the two extremist parties, the far-right Alternative for Germany and the far-left Sahra Wagenknecht Alliance. They have no prospect of entering government this time around, but if they obtain a combined one-third of the seats in the Bundestag, they could block legislation requiring changes to the constitution, which needs a two-thirds majority. Such a blocking minority could hamper the next government’s ability to implement a forceful reform agenda.
What is the reason for the conservatives’ strength?
There are two factors. The first is that voters’ number one concern at the moment is the state of the economy. This issue has traditionally favored conservatives, who are seen as more competent in this realm. The second is the collapse in the popularity of the three parties of the ruling coalition amid a widespread sense of crisis and malaise. They have recovered a bit recently, but at one point the approval ratings of the three parties combined were at about the same level as those of the conservatives.
Assuming a conservative-led government emerges, what does that mean for domestic policy?
If the Christian Democrats form a coalition with the Social Democrats, they will have to jettison many conservative ideas. The German system is geared toward stability and continuity, an approach that has worked extremely well, though the downside is that it’s hard to make big changes when needed. The question is whether the current crisis is big enough to force change. I expect an overhaul of the so-called debt brake, a strict limitation on government borrowing that has restrained policymaking. But beyond that, a raft of politically difficult measures are needed to deregulate industries and lower labor costs to restore German competitiveness. We’ll see if the next government can deliver.
How about foreign policy?
There would certainly be more engagement with the EU. The Christian Democrats pride themselves on being the pro-EU party of Germany in the tradition of Konrad Adenauer and Helmut Kohl. My guess is that the next government will remain reluctant to embrace the proposals for common borrowing backed by some other EU countries. Still, it could be more supportive of other joint initiatives. Merz had been more hawkish in his rhetoric toward Russia but has recently toned it down because he knows there are a limited number of votes he can win with this approach. Regardless, foreign policy will be a somewhat lower priority for the next government than getting the economy going again.
Edited by Jonathan House, Senior Editor at Eurasia Group.
German Finance Minister Christian Lindner, Economic Affairs and Climate Action Minister Robert Habeck, and Chancellor Olaf Scholz attend the 2024 budget debate session of the German lower house of parliament, the Bundestag, in Berlin, Germany, earlier this year.
Will Germany’s ruling coalition survive the winter?
An uncomfortable dynamic: Scholz held a summit on Tuesday to discuss Germany’s economic woes but didn’t even invite his finance minister, Christian Lindner of the Free Democrats, who decided to schedule a competing economic summit the same day.
“The three-party coalition is plagued by a lack of internal discipline, weak leadership by Chancellor Olaf Scholz, record-low approval ratings, and deteriorating trust between its leading figures,” says Jan Techau, a Berlin-based Europe expert at Eurasia Group.
Beyond the economic crisis, issues ranging from the rise of the far-right AfD to growing geopolitical pressures brought on by the war in Ukraine and a more assertive China have placed the German government in “a perfect storm situation,” says Techau.
Germany’s GDP grew in the third quarter, helping it avoid a recession, which Economy Minister Robert Habeck on Wednesday said offers a “ray of hope.”
But there are still concerns that the coalition could soon collapse, which would pave the way for snap elections in the spring. While the probability of an early vote has gone up, Techau says it’s still more likely that the government will complete its full term.
The coalition is held together by the “weakness” of the ruling parties and the fact that “early elections are likely to produce disastrous results for all three of them,” adds Techau.
The next general elections aren’t scheduled until Sept. 2025. We’ll be watching to see whether the German government can keep it together in the meantime.
Johannesburg, South Africa - People are pictured voting at a polling station in Soweto in Johannesburg, South Africa, on May 29, 2024.
South Africa’s ruling party faces coalition conundrum
South Africa’s ruling African National Congress, led by President Cyril Ramaphosa, scored its worst election result in 30 years last week, forcing the party into tricky coalition talks. The ANC took just 40% of the vote, down from 58% in 2019 and below the party’s worst-case projections, as support waned due to high corruption, unemployment, and crime. Nelson Mandela’s former party now faces a choice between potential partners for building a coalition, all with a heavy price.
Leading contenders are the Democratic Alliance with 22% of the vote and the uMkhonto weSizwe party, aka MK, with 15%. However, ANC chairperson Gwede Mantashe indicatedan alliance with the DA is difficult due to policy differences, particularly on affirmative and universal healthcare. The DA wants toend the ANC’s racial quota system for employers and opposes the recently-passed universal healthcare act but says it is willing to work with the ANC.
The MK is also prepared to work with the ANC, but not if it’s led by Ramaphosa – a difficult starting position for talks. In addition, both the MK and a third possible partner, the Economic Freedom Fighters, campaigned on putting all land under state control and nationalizing mines and banks, issues that make foreign investors and many South Africans nervous.
The EFF is not a viable coalition party by itself since it obtained only 9% of the vote, which would fall just short of a majority for a coalition with the ANC. It is also considered “too erratic in its orientation, too in your face, and too unreasonable in its policy demands,”according to political analyst Susan Booysen.
Eurasia Group analyst Ziyanda Stuurman says she’s now watching provincial-level leaders, whose support or opposition to a coalition with the DA will prove determinative.
“Ramaphosa and his camp will need support from them for an ANC-DA governance model, or he could face a fast-moving rejection of his plans to form and lead a new government, and his allies may be swept out of power in a revolt against their leadership of the party,” she explained.
The new parliamentmust be sworn in within two weeks, and the president will then be chosen. Sources say that Ramaphosa is unlikely to resign despite the historically poor results, but we’ll be watching to see what deal he cuts to try and survive.15th January 2024 Geert Wilders arrives at palace on the Dam for the Dutch Kings annual New Years Reception.
Wilders in the wilderness: Far-right Dutchman drops PM bid
Dutch far-right politician Geert Wilders will not become prime minister of his country, despite getting the most votes in last year’s election.
Although Wilders’ PVV party swept to victory on a scorching anti-Islam and anti-migrant “Dutch First” message, he still needed coalition partners to form a government. Months of talks with a handful of center-right parties ended this week without support for Wilders as PM.
The result prolongs the political uncertainty for the Netherlands, which looks headed for a bizarre “extra-parliamentary cabinet” headed by a technocrat cabinet in which none of the ministers is from the PVV or the other three parties.
On the one hand, the episode is another example of the practical limits for European far-right parties, despite their rising electoral fortunes. (We saw something similar in Portugal last weekend, where the far-right Chega party was sweet at the polls but still too toxic for a coalition.)
But watch closely. Wilders has said he would “like a right-wing cabinet.” Will Wilders, given his obvious popularity, be able to pull policy rightward even from outside the government?