The German economy is in trouble. The collapse of the government and the return of Trump brings more danger

WARSAW, Poland (AP) – Collapse of the German ruling party and of President-elect Donald Trump come back soon in the White House are creating new risks for the European Union’s largest economy, which is already in a worrying slump.

The German economy has been decrease in the last two years due to the coronavirus outbreak, war in Ukraine and competition from China. In the midst of both domestic and global challenges, the three-party coalition of Chancellor Olaf Scholz. failed to find way forward on other important issues.

The situation worsened on Wednesday night when Scholz announced that he was firing Finance Minister Christian Lindner. This process essentially meant the collapse of the chancellor’s union, which was dependent on Lindner’s Free Democratic Party, and left the government in need of a parliamentary majority.

The collapse of the corporation followed weeks of internal conflicts on how to boost Germany’s faltering economy.

Scholz said he plans to seek a vote of confidence in parliament on January 15, a move that could lead to early elections in late March if he is defeated. Germany’s next regularly scheduled election is not until September. Meanwhile, he said he would reach out to the opposition leader Friedrich Merz of the center-right Christian Democrats to discuss ideas to strengthen the country’s economy and security.

But business leaders called on Thursday for Scholz to act quickly to produce a stable government that is committed to dealing with the crisis.

“Every additional day with this federal government is a lost day. We want new elections as soon as possible,” said Dirk Jandura, president of the German general agency BGA. “Germany needs economic reform. We have to turn the tide before the tide gets too high.”

The collapse of the corporation came in the final hours of the day European leaders he began to dig into the reality of another Trump presidency, which will have serious consequences for European security and the economy.

“At the European level, political instability in Germany is not good news,” said Antonio Villafranca, vice president of the Italian think tank ISPI, noting that the strong Franco-German alliance at the heart of the European Union is provide vital energy. during Trump’s first presidency.

Trump has threatened to withdraw from NATO and to basic support change for Ukraine in its war with Russia. He also threatened to slap charges of up to 20% of goods from the EU, (even higher tariffs on goods from China), raising the prospect of a trade war with Washington’s European partners.

The tariffs would have a major impact on Germany’s exports and deal another painful blow to an economy that has long been buoyed by cheap and plentiful energy from Russia and markets. the largest foreign country.

German industry has not fully recovered from the COVID-19 pandemic. Then followed Russia’s all-out invasion of Ukraine in 2022, which caused Germany and other Western countries to cut themselves off from Russian gas and oil. Competition from China, including its electric cars, has already forced German and other European automakers to cut production and lay off workers.

“Political changes in the past 24 hours have clouded the already bleak short-term outlook for the German economy,” said Carsten Brzeski, global head of macro banking at Dutch banking firm ING.

“The second term of office for Donald Trump in the United States, with new trade conflicts expected, will hit the German economy, which has 10% of its imports going to the US,” said Brzeski in a letter published Thursday. “It doesn’t take much imagination to see US tariffs on European cars sending the German auto industry into deep trouble.”

Some analysts say that Trump’s acceptance of the tariffs may benefit the German auto industry, which has unfortunately been one of the reasons for the recession. While Trump has threatened to impose new tariffs on European products, President Joe Biden has already imposed 100% tariffs on Chinese electric vehicles, which have overwhelmed the global market.

“Trump could save the German auto sector” by keeping tariffs on Chinese EVs, said Daniel Gros, director of the Center for European Policymaking at Milan’s Bocconi University. “The United States is the only market in the world where German automakers don’t face much competition from China.”

Last month, Volkswagen said scheduled to close at least three German factories, the first domestic closures in its 87-year history.

“Some factories will have to close, but probably less,” Gros said.

Scholz’s dismissal as finance minister came after his centre-right Social Democrats and the environmentalist, left-wing Greens clashed over the country’s massive investment plans. The Free Democrats, however, have rejected a tax increase or changes to Germany’s self-imposed tough debt rules.

Scholz accused Lindner of refusing to find common ground on economic issues, including publicly calling for what the congressman said would be billions in tax cuts for a few high-income earners. while at the same time reducing pensions for all recipients.

“That’s not right, that’s not fair,” Scholz said.

Scholz’s studies Social DemocratsVice-Chancellor Robert Habeck’s Greens and Lindner’s Free Democrats, a party that in recent decades has been closely aligned with conservatives, have started in 2021 to form a determined, progressive, yet he continues the divisions that would improve Germany.

The government can point to success: preventing energy shortages after Russia cut off its gas supply to Germany, starting from military reform and a series of social changes. But the impression he left on many Germans is one of great inaction.

“Given the global political situation and the poor development of the German economy as a region, we now need a new, competent government with its parliamentary majority as soon as possible, ” said Siegfried Russwurm, president of the Federation of German Industries.

“With the inauguration of a new US government in early 2025, uncertainty is expected to increase,” said Russwurm.

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Barry reports from Milan.