Scholz Loses No-Confidence Vote as Germany Gears Up for February Election

Travel Tuesday: Togo 

Togo boasts one of the world's largest phosphate reserves, a crucial component in fertilizers. This West African nation plays a vital role in global agriculture.  

GDP: $5.5 billion 

Biggest Export: Gold, refined petroleum, calcium phosphates 

Biggest Trading Partners: China, India, Burkina Faso, Benin, Ivory Coast, Mali, France 

Political System: Togo operates as a parliamentary republic. The president is the head of state, and the prime minister is the head of government. 

National Animal: The lion 

Next Election: February 2, 2025 (senatorial) 

Scholz Loses No-Confidence Vote as Germany Gears Up for February Election

Yesterday afternoon the German Chancellor Olaf Scholz lost a no-confidence vote weeks after his coalition collapsed.

Scholtz had been widely expected to lose the vote ever since the governing coalition - consisting of the left of centre Social Democratic Party, the left of centre Greens, and the centre right Free Democratic Party (FDP) - fell through. 

Following the vote, the Chancelor of Germany Olaf Scholz announced yesterday that the country’s electorate will head to the polls on 23rd February for the Federal Election.

The Chancellor has been beset with a number of international and domestic crises including a slump in growth, persistent inflation, increasing competition from Chinese car manufacturing, the conflict in Ukraine and tensions over fiscal policy.

His legislative troubles reached a climax in November when he fired the Finance Minister Christian Lindner (of the FDP). While Scholz’ Social Democratic Party and the Greens campaigned to increase debt and government spending, the FDP favoured a more fiscally conservative approach. Tensions climaxed when the coalition was split over whether to change the country’s debt rules and increase spending by €60bn. While the decision to increase spending was ultimately outlawed by the courts, it demonstrated the divide within the coalition, alongside thwarting Scholtz’ fiscal agenda.

What’s Next?

Attention now turns to how the election may unfold. According to a number of pollsters, the frontrunners are the ‘Union’ comprising of the Christian Democratic Union (CDU) and the Christian Social Union (CSU) which are polling at just over 30%.

The CDU/CSU alliance are set to announce their manifesto later today, however it’s widely expected that the union will look to win over voters through pledging to cut taxes and take a tougher line on immigration.

According to the FT’s Guy Chazan, their fiscal agenda includes reducing social security taxes and easing corporation taxes from the existing 30% level to 25%.

The Union are also against rising the state pension age, a topic which remains a highly salient issue in the German political scene.

Elsewhere, the far-right Alternative for Germany (AfD) party have put forward their candidate Alice Weidel as its first chancellor nominee. The party - which in September won their first state election in Thurungia while coming a close second in Saxony – are currently polling just under 20%. This puts them ahead of Scholz's Social Democrats (currently at around 16-17%), and while they would struggle to form a government, they could well influence the general discourse of German politics.

One consideration here is their relationship with the EU. For example, earlier this year they indicated that they would push for a Brexit style referendum if they were unable to make material reforms to Brussels. They have also criticised Germany’s involvement in Ukraine in addition to questioning the country’s NATO membership.

Whatever happens at the polls, it’s evident that the Bundestag will have to address major political and economic issues, with concerningly low levels of growth and unemployment at its highest level since February 2021 (at 6.1%).

UK Wage Growth Beats Forecasts 

UK wage growth surpassed expectations this morning as markets gear up for the BoE’s MPC meeting on Thursday. Against forecasts of a 5% print, average earnings excluding bonuses rose by 5.2% on an annualised basis over the three months to June. Meanwhile, annual wage growth including bonuses came in at 5.2%, against forecasts of 4.6%.

The latest data therefore indicates that regular pay in the UK is now £656 a week.

Policy makers will be keeping a close eye on the inflationary impact of wage growth coming in above forecasts, as attention turns to Threadneedle Street where the market is expecting the BoE to hold rates.