German Government Collapse Is a Bad Sign for Europe | Opinion

Germany’s “traffic-light” coalition is dead, thanks to its finance minister’s refusal to let Chancellor Olaf Scholz open the spending floodgates. As the nation hurtles towards new elections in February, its faces months of political and economic uncertainty.
This isn’t just another domestic political squabble playing out in Berlin. While the world’s gaze has been fixed on America and Donald Trump’s reelection, Germany’s situation is equally pressing.
The fall of Germany’s coalition government has exposed deep cracks in a system stretched to its limits. Now, the country’s stalling economic engine signals the end of an era in European politics.
Then-finance minister Christian Lindner’s refusal to approve unchecked deficits came as a desperate response to structural failures born of economic realities that can no longer be ignored.
After all, Europe’s economy is under siege. From the East, Chinese electric vehicles are flooding European markets, undercutting the prices of domestic manufacturers. Germany and France, once the pillars of European unity, are now at odds over whether to defend their industries with protectionist tariffs or to double down on free trade opportunities.
And in the West, a Trump-shaped storm is rolling in. The U.S. president-elect’s proposed 10 percent tariff on all imports threatens to drain €260 billion from Europe’s economy, leaving EU leaders scrambling to win his favor—even offering to finally sever ties with Russian gas in favor of American LNG imports. But such concessions come at the cost of dependence on a distant partner and further erosion of Europe’s autonomy.
In the meantime, Europe faces a far more urgent challenge: financing its future without plunging into debt.
In total, the bloc needs an additional €800 billion each year to revitalize its stagnant economy and reclaim its place on the global stage. But this necessary investment risks submerging nations that are barely staying afloat.
France, for example, has announced brutal public spending cuts of €60 billion for 2025 in order to meet EU deficit rules. It already pays over €45 billion annually in interest on debts, leaving little margin for error. Any deviation from this harsh fiscal path could tip its fragile government over the edge.
This is becoming a dangerous trend. All over Europe, coalition governments are crumbling under the weight of competing economic and political demands. Governments in Denmark, Poland, Spain, and Portugal are facing the same impossible choice between fiscal survival and the fulfillment of expensive election promises.
Germany’s collapse is the most alarming of all. As the economic heart of Europe, it accounts for nearly a quarter of the EU’s GDP. The embargo on Russian energy already dealt it a staggering blow, but the political fallout could prove just as damaging. Without decisive action, it could trigger a domino effect that topples governments across the continent.
The economic model of the past decade, characterized by unchecked public spending, is no longer sustainable. A new fiscal regime must emerge—one that balances disciplined spending with strategic investment in critical sectors like green energy and artificial intelligence.
But fiscal reform alone isn’t enough. Europe must also reinvent itself as an attractive destination for foreign investment after losing its edge in recent years. Foreign direct investment fell by 4 percent across the continent in 2023, with Germany suffering a steep 12 percent decline.
We’ve already seen a glimpse of the possibilities. In recent years, Italian electricity utility Enel has been bolstered by international investors like BlackRock, enabling it to diversify from fossil fuels into renewables. Similarly, French energy company TotalEnergies is expanding its portfolio of solar and wind, greening Europe’s economy with the help of investment from China and Saudi Arabia.
The chemicals industry is picking up too, with LyondellBasell, a Dutch company, gaining traction among Asian investors interested in its development of sustainable plastics. Just last month, German chemical giant Covestro was acquired in a whopping €14.7 billion partnership with the Emirati energy giant ADNOC. This deal offered a lifeline for Germany’s struggling industrial sector while creating a template for how Europe can attract the foreign capital it desperately needs.
After all, ADNOC has committed to investing $150 billion on capital expenditure by 2027, suggesting that more deals may be on the table. By partnering with the fast-growing economies of Gulf nations, Europe can gain both financial and strategic support.
These countries have long depended on their fossil fuel resources, but as the market shifts towards greener alternatives, they are keen to diversify into other areas. ADNOC has gained a head start by grabbing hold of Covestro’s innovative sustainable chemicals business, but others are bound to follow.
Now, Europe must prepare to deliver. We must heed the urgent warning of the German government’s collapse, else other governments will crumble—taking Europe’s collective economy with them. Our future depends on our ability to adapt and unite, harnessing our potential to lead the world into a cleaner and greener future.
Isabel Schatzschneider is an activist and commentator on EU policy, especially the environment, energy, and the rise of the far-right. She is a Research Associate at the Friedrich-Alexander University, Erlangen-Nüremberg, and former researcher at the Schweisfurth Foundation in Munich. She has written for Newsweek, Toronto Star, Euronews, EUobserver, Parliament Magazine, Social Europe, UK in a Changing Europe, among other publications.
The views expressed in this article are the writer’s own.