The end of the shrunken coalition has now been sealed with a date. On February 23, 2025, Germans will elect a new Bundestag. The majority of voters desired this outcome. The swift and dramatic end of the failed coalition offers a prospect for the future. In constant conflict, the three-party coalition had deadlocked itself. Now, the door is open for a fresh start.

However, it does not look as rosy as some hope. It may take until April or May before a new government is in place. The future coalition formation could also be complicated. Who will govern with whom is far from certain. The operational failure within the federal government has severely damaged trust in good political leadership. This has the potential to strengthen the populist fringes, partly to punish the traditional parties. If a three-party coalition is formed again, it will cause more tensions than a two-party alliance. The parties involved will constantly try to differentiate themselves in order to be noticed.

Since the collapse of the coalition, the election campaign has already started. Major projects are unlikely to be passed in the remainder of the legislative period – with the possible exception of enshrining features of the Federal Constitutional Court in the Basic Law. This step strengthens the democratic institution, and has a cross-party consensus among those who are committed to democracy.

Now, a lot is being promised from all sides. The current chancellor, Olaf Scholz (SPD), wants to push through projects from the coalition until the end of the legislative period. This includes as many initiatives as possible from the growth strategy aimed at stimulating the economy. Also part of this are increases in child benefits, and adjusting the income tax rate to inflation. This would eliminate tax bracket creep, but also lead to tax revenue losses of around 20 billion euros. This law and its financial implications also include aspects from the growth initiative: improvements in collective depreciation, increased declining balance depreciation beyond 2025, and the expansion of tax incentives for research. The controversial reporting obligation for national tax planning arrangements would also be introduced. This example already shows that it will not be easy to negotiate laws in the Bundestag at this late stage.

The new government will face the same financial challenge as the Ampel coalition. If the debt brake is applied, there is no room for additional spending or tax relief without cuts elsewhere. The CDU and CSU are committed to the debt brake. Even if this were not the case, EU fiscal rules limit excessive spending.

Therefore, anyone contemplating backing legislative initiatives during this term will also have to consider the financial foundation of the incoming government. The SPD is attempting to gain support for the supplementary budget for 2024 with the prospect of more leeway in 2025. The poor economic situation would allow for an additional 12 billion euros in new credit this year, which is in line with fiscal rules. It would allow the federal government to conserve its financial reserves and use them in 2025. However, a debt policy in advance should not be a guiding principle.

Politics can only win if the economy gets back on track. A convincing programme must include more than just targeted subsidies for specific industries, like the struggling automotive sector. The framework must be right to encourage businesses to invest again: Germany's corporate taxation has not been competitive for years. High energy prices in a fragmented transformation process burden companies. Excessive bureaucracy absorbs resources that would otherwise be necessary for business. A convincing programme is not only crucial for the domestic market. The new government will only be able to fulfill its promises with the help of a thriving economy and strong tax revenues.