Olaf Scholz loses confidence vote, paving the way for February election.

• On Monday, the German Chancellor, Olaf Scholz, lost a confidence vote in the Bundestag.
• In Germany's history, this was only the sixth time a vote of this kind occurred.
• Scholz had called for earlier elections in November, hoping to lose the vote.

On Monday, the German Chancellor Olaf Scholz lost a confidence vote in the Bundestag, paving the way for an early election in February.

Scholz had called for earlier-than-planned elections in November, hoping to lose the vote.

Only the sixth time in Germany's history has a vote taken place where a president has fallen foul, and it is the fourth such instance.

Scholz stated on Monday that he had cast the vote not just for parliament but the entire electorate.

Prior to the vote, Scholz told lawmakers, "Do we dare to be a strong country and invest powerfully in our future?"

In November, Scholz dismissed former Finance Minister Lindner, resulting in the dissolution of Germany's ruling coalition, which had been in power since 2021 and consisted of Scholz's Social Democratic Party (SPD), Lindner's Free Democratic Party (FDP), and the Green party.

Despite not having a parliamentary majority, Scholz is widely viewed as a lame duck as the SPD and Green party remain in government as a de facto minority government after Monday's vote until a new Bundestag is formed.

The coalition government, consisting of three parties, experienced conflicts over budgetary and economic policy views. The disagreements escalated with a paper written by Lindner, which proposed a plan to revive the German economy. However, the former finance minister opposed the fundamental positions of the SPD and Green party in the paper.

Germany's 2025 budget remained unresolved as the parties were unable to reach a final agreement.

The government will operate under a provisional budget until the new Bundestag creates its own budget, according to Germany's finance ministry, which expects a provisional spending plan for 2025 to be implemented no earlier than the middle of next year.

What happens next?

The German President Frank-Walter Steinmeier has 21 days to dissolve parliament, after which a new election must be held within 60 days, with the date set for Feb. 23.

The German constitution aims to prevent the political turmoil experienced by the Weimar Republic in the 1930s, which contributed to the rise of the Nazis in Germany.

The 2025 election campaign has commenced, with Germany's political parties presenting initial policy proposals on crucial topics such as immigration, the economy, taxes, debt control, and social security. Complete manifestos are expected to be unveiled in the near future.

The SPD and CDU have announced their respective chancellor candidates, Scholz and Merz, even though Scholz's coalition has fallen.

The CDU and its Bavarian affiliate, the CSU, are currently leading polls and are expected to become the largest party, positioning Merz to succeed Scholz as chancellor. The CDU/CSU is then predicted to form a coalition with either the SPD or the Green party to form Germany's next government.

According to Kallum Pickering, chief economist at Peel Hunt, an agreement on fresh fiscal support for Germany's economic malaise is likely, regardless of the election outcome.

"If the new administration does not make changes to the debt brake within the first three to six months, but they have a big enough majority, economic conditions will eventually force them to accept the need for a fiscal stimulus, according to Pickering on CNBC's "Street Signs Europe.""

When Germany receives fiscal stimulus, things start to improve, he believes.