Scholz Urges Squabbling Alliance to Focus on Practical Solutions

(Bloomberg) - Chancellor Olaf Scholz urged his coalition partners to focus on pragmatic solutions to Germany's challenges rather than "ideology" and to set aside differences over how to lift Europe's biggest economy out of its slump.

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With the next national election less than a year away, relations between Scholz's Social Democrats, the Greens and the Free Democrats have become increasingly fraught, prompting speculation that the three-party alliance could break apart.

Scholz, Economy Minister Robert Habeck of the Greens and Finance Minister Christian Lindner of the business-friendly FDP are holding talks Monday and Tuesday to try to defuse the crisis ahead of the next regular meeting of senior coalition officials on Wednesday.

Quizzed by reporters about the sustained infighting after hosting NATO Secretary General Mark Rutte at the chancellery on Monday, Scholz acknowledged that coalitions are "sometimes a bit challenging" while insisting that the government "will carry out its tasks."

He said the focus is on agreeing appropriate measures to boost growth and protect jobs, as well as getting approval by the end of the year from lawmakers for the 2025 budget — another source of friction between the coalition partners due to limited funds.

"It's about us overcoming the challenges we face in difficult times," Scholz said. "There are tasks that must be addressed and can be addressed. We have to work in a serious way and that is what I expect from everyone."

Speaking to reporters later on Monday, Habeck, who is also the vice chancellor, admitted that the government has presented a chaotic image in recent days, with Scholz and his ministers holding rival meetings with industry groups and labor officials and publishing conflicting policy papers.

"The last few days have been bad for Germany and they have not helped to strengthen confidence in the government," he said, while expressing optimism that the coalition can still reach a consensus.

Greg Fuzesi, an economist at JPMorgan in London, said that even if the election was brought forward, the victorious party would likely still face the challenge of needing to combine forces from the center-right and center-left to form a viable ruling alliance.

"Hence, difficult decisions about prioritizing solutions in light of a (largely self-imposed) fiscal constraint will be faced by any government," Fuzesi wrote in a note.

"A risk is that, whether through new elections or through an overly long run-up to the regularly scheduled vote in September 2025, German policy-making grinds to a halt for a while," he added.

-With assistance from Kamil Kowalcze and Petra Sorge.

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