Political confusion
Traffic light broken – so what? Government crisis has consequences for citizens
Updated on November 8, 2024Reading time: 4 min.
Politics is sometimes very abstract and far away. What do I care if the parties don’t get along? The answer is: quite a lot.
Now of all times, in the middle of an economic crisis, in the middle of the war in Ukraine, in the middle of great uncertainty after the elections in the United States – now of all times the traffic light coalition in Berlin is breaking down. In a survey for the ARD Deutschlandtrend on Thursday, 65 percent were in favor of a new Bundestag election as quickly as possible. In the ZDF political barometer, 54 percent are also in favor of an earlier election than Chancellor Olaf Scholz (SPD) is planning. Nevertheless, the political chaos has some consequences that are felt by almost everyone in the country.
The break in the traffic light means that the remaining government of the SPD and the Greens no longer has its own majority in the Bundestag - not even for the adoption of the federal budget. What sounds technical affects millions of people. There could be budget freezes as early as this year if the Bundestag does not allow the government to take on additional debt. Then, for example, it could happen that subsidies for house building no longer flow.
Thousands of employees with project contracts have to worry about an extension at the turn of the year. This includes, for example, social projects such as a lesbian and gay association or the peace service Aktion Sühnezeichen, but also associations that work to strengthen democracy. They are often at the top of the scratch list. In concrete terms, this means: jobs are being lost.
Marcel Fratzscher, President of the German Institute for Economic Research in Berlin, says: “The most urgent task in the coming months will be the adoption of the 2025 federal budget, otherwise the damage to the economy and society will be even greater.”
The now ex-Finance Minister Christian Lindner (FDP) had actually planned relief worth billions – not only for companies, but above all for ordinary citizens. It is now completely unclear whether this will actually happen, because the remaining government would need the Union’s help.
From January onwards, child benefit should increase, as should the immediate child allowance for families with low incomes. It’s quite possible that this won’t work for now.
There is also a risk of a higher tax burden. The broken traffic light actually wanted to ensure that taxpayers did not suffer even more from high inflation. Now it could happen that the so-called cold progression is not absorbed - that is, that citizens have to pay more to the tax authorities due to the increasing tax rate
Fratzscher says the government shouldn’t concentrate on that right now. “There are more urgent needs that would better help the German economy,” he said. For citizens, however, this means: less net of the gross.
Not immediately measurable, but noticeable for almost everyone: people in Germany react to uncertainties, whether political or economic. “The economy and citizens want a certain stability, they want to know what to expect,” says Dresden political scientist Hans Vorländer. ”We have great demands and expectations of the state. This plays a larger role for us than in other countries such as the USA.”
His colleague Karl-Rudolf Korte from the University of Duisburg-Essen even said on ZDF: “We are stability fanatics.” He relates this to the fact that the Basic Law is actually designed to avoid political deadlocks. The German social systems are also so sophisticated because there is a great need for security. Periods of uncertainty can also cause people to delay purchases and hold on to their money.
What concerns private individuals affects companies even more. “The end of the traffic light government will increase uncertainty and political paralysis in the coming months,” expects DIW boss Fratzscher. “This is likely to cause further economic damage and weaken the German economy at a time when it is already very weak and struggling.” Fratzscher is a proponent of an “expansive fiscal policy” – the state should stimulate the economy with additional investments in phases of crisis or recession. What will be difficult if no budget is reached for the time being.
Interview Between Time.news Editor and Marcel Fratzscher
Time.news Editor (TNE): Welcome, Marcel Fratzscher, President of the German Institute for Economic Research. Thank you for joining us today to discuss the recent political upheaval in Germany and its implications.
Marcel Fratzscher (MF): Thank you for having me. It’s always a pleasure to discuss these critical issues.
TNE: The article highlights a significant political shift with the breakdown of the traffic light coalition. In your view, why is this moment particularly concerning for citizens?
MF: The collapse of the coalition comes at a time when Germany is facing multiple crises, including an economic downturn and international tensions, particularly the war in Ukraine. The political uncertainty adds to an already fragile situation. Citizens and businesses thrive on stability, and this turbulence threatens both.
TNE: You mentioned that citizens desire stability. Given the current uncertainty, do you think there’s a risk of immediate consequences for everyday Germans?
MF: Absolutely. The remaining government led by the SPD and the Greens has lost its majority, which complicates passing essential measures like the federal budget for 2025. Without a budget, we risk freezes on vital programs and subsidies, potentially affecting housing projects and social services.
TNE: The article suggests that thousands of project-based employees might face job insecurity as contracts expire. Can you elaborate on that?
MF: Yes, many social and democratic strengthening projects rely on government funding, which is now in jeopardy. This includes support for organizations that combat social issues or promote democracy. If funding is cut, it leads not only to job losses but also to a significant setback for essential social initiatives.
TNE: The previous Finance Minister had plans for substantial relief measures for citizens amid rising inflation. Are these plans now effectively paused?
MF: That’s correct. With the coalition’s collapse, the prospects of these relief measures are highly uncertain. For instance, increases in child benefits and support for low-income families may not occur as planned, risking higher financial burdens for those who need it most.
TNE: You mentioned the risk of “cold progression.” Can you explain this concept and why it matters in the current situation?
MF: Cold progression occurs when taxpayers enter higher tax brackets due to inflation, not because of real wage increases. This situation can lead to citizens paying more taxes without increased income—contrary to what the broken coalition aimed to prevent. It’s an issue that could further strain household budgets at a time when many are already struggling.
TNE: What do you believe should be the immediate priorities for the government to stabilize the situation?
MF: The most urgent task is to constitutionally adopt the 2025 federal budget. Otherwise, the economic and social damage could deepen. Beyond that, discussions on tax relief should be deprioritized; people need immediate support in their daily lives before long-term fiscal strategies.
TNE: How do you see the broader economic climate reacting to this political turmoil?
MF: Political instability tends to breed economic uncertainty. People hesitate to make purchases or investments when they’re unsure about future government policies. This can stifle economic growth and consumer confidence. We need decisive action to reassure both the public and the market.
TNE: Thank you, Marcel, for sharing your insights on this pressing issue. It’s clear that the political confusion has real implications for the economy and the citizens of Germany.
MF: Thank you for having me. It’s essential to raise awareness about these interconnected issues, as they impact our everyday lives.