Germany Faces Tumultuous Political and Economic Shifts After Ampel Coalition Collapse

Germany began 2025 amid unprecedented political turmoil following the collapse of the Ampel coalition consisting of the SPD, Greens, and FDP at the end of 2024. Public dissatisfaction, particularly over debates surrounding the debt brake, played a central role in this breakdown. Early elections on February 23, 2025, dealt a crushing blow to the coalition parties: the SPD suffered its worst defeat ever, and the FDP failed to surpass the five percent vote threshold. Conversely, the right-wing Alternative für Deutschland (AfD) capitalized on widespread discontent, doubling its share to 20.8%.

A new government led by Friedrich Merz took power, significantly altering the country's fiscal direction by amending the constitution to abolish the debt brake. This move enables substantial increases in military spending, potentially reaching nearly 150 billion euros, alongside a 500 billion euro infrastructure package and a 100 billion euro climate fund. However, these policy changes mark a departure from Germany’s long-standing fiscal discipline.

The economic outlook for 2026 appears bleak; growth is projected at a mere 0.2%, while social unrest is expected to intensify amid austerity measures and rising unemployment. Government popularity is waning, with no parliamentary majority reported in polls late in 2025. Upcoming regional elections in 2026 could further shift power dynamics, potentially enhancing the AfD’s influence.

Meanwhile, Germany's high tax burden coexists with widespread perceptions of a dysfunctional state. Steffen Jäger, Vice President of the German Association of Towns and Municipalities, criticized politicians for creating unrealistic promises that have fostered a sense of entitlement among the public. He called for a fundamental change in governmental approaches to restore trust and manage expectations.

Overall, Germany stands at a critical juncture politically and economically, grappling with a new government agenda that prioritizes defense spending and investments but faces strong public discontent and uncertainty about the nation's future stability.