With the collapse of the German government, what now for the country's planned pension reforms? Pete Carvill explains the situation

It might have been the biggest story in politics in any normal week – German Chancellor, Olaf Scholz, firing his Finance Minister, Christian Lindner, causing the collapse of the German government.

The problem is that it was not a normal week – given that the day before, the US had decided once again to elect Donald Trump to its presidency. The US election might have been the piece of news that Scholz would have wanted, given that it deflected some of the international attention away from his own inadequacies in leading Europe’s largest economy (technically, Scholz is not the head of state – that honorific belongs to the current President, Frank-Walter Steinmeier, but his role is not much more than ceremonial).

The German government in its current form, which will undoubtedly shift in February when the election will take place, is like all other German governments, a coalition. Scholz is the leader of the Social Democratic Party (SPD) while Lindner is the chairman of the Free Democratic Party (FDP). Both parties are considered on the left wing of the political spectrum. The current coalition is also supported by the Greens, led by vice chancellor, Robert Habeck.

Scholz fired Lindner on 6 November. In response, the FDP removed all its members from the coalition.

As national broadcaster, Deutsche Welle, summed it up on the day: “Representatives of the three parties making up Germany's centre-left government… met for a crisis meeting on Wednesday evening. It lasted only two hours. The coalition partners no longer had much to say to each other. Finance Minister, Christian Lindner, (FDP) proposed early elections, Scholz refused and dismissed Lindner from office. Scholz addressed the media at 9.15pm.”

The issue that Scholz’s cabinet could not agree on, and which has caused the collapse, centres around the budget. More or less a year ago today, the Federal Constitutional Court declared the government’s budget policy to be unconstitutional. The plan under that policy had been to take money raised to manage the Covid 19 pandemic and use it for the climate action budget. The court’s ruling left a €60bn hole in the budget. Since then, no one has been able to agree within the government on the path forward.

And now Lindner is gone, the vote of no confidence is on its way (delivery date unknown) but with elections set to take place in February.

It is never good when a government goes into freefall, but it is made worse when that freefall comes against a backdrop in which strong policies are not only needed but necessary.

The German economy may not be tanking, but it is beginning to shudder. Two weeks ago, the German Chamber of Commerce and Industry (DIHK) declared that the economy was ‘losing ground’. These remarks came with the release of the organisation’s latest DIHK Economic Survey, which surveyed 25,000 companies within Germany.

According to the survey, just over a quarter (26 per cent) of companies rate their business situation as ‘good’, down two percentage points since the early summer. Nearly as many again rate it as ‘bad’ – itself a two-percentage-point increase.

DIHK chief executive Martin Wansleben said: "[In] some cases, feedback from companies raises concerns that things could get worse. For 2024, we're lowering our forecast to at best ‘zero growth'. For the coming year, we only expect zero growth as well. This would be the third consecutive year without real GDP growth!"

While Scholz’s government lurches and tries to save itself – it’s currently talking with the CDU leader, Friedrich Merz, about a coalition – it is not dealing with the current economic uncertainty and worry, nor the future economic uncertainty and worry that it is heading towards.

As I wrote in a recent post for European Pensions: “Germany’s pension scheme has been troubled for some time. Based on three pillars — statutory pension insurance, occupational pension schemes, and private plans—the country has a rapidly ageing population, with the proportion of the population over the age of 65 slated to increase from 21% to 29% by the end of the decade. The Federal Statistical Office put that proportion at 15% in 1991.”

The problem is that Lindner’s departure and the ability to find a way forward has created a void for future reforms, including pension reform, past a time when they have desperately been needed. Just this week, it was announced that the first-pillar reform package is essentially dead in the water after losing FDP support.

So, there is a void. And if that void cannot be filled soon with reasonable voices advocating reasonable reforms and plans, it will soon be filled with the shouting of others – parties such as the far-right AfD or the hard-to-fathom Sahra Wagenknecht Alliance.

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