grand coalition

Political conditions in the Federal Republic of Germany improve markedly in 1964 and 1965. The income of workers rises strongly. The government under Federal Chancellor Ludwig Erhard can count on an ample budget. Under these conditions, the cabinet approves laws that will increase budgetary expenses considerably for the fiscal year 1966.

In the fall of 1965 there is an unexpected crisis-like collapse of the economy. The Federal Republic slides into the first recession since its creation. Among the causal factors are developments in the coal industry. The demand for coal - the "black gold" that made possible the reconstruction of the country after the Second World War - declines because cheap petroleum has become the primary energy source. The Bundesbank (Federal Bank), concerned only for the stability of the D-Mark, holds on to its policy of high interest rates. This raises costs for loans and impedes the new investment needed to overcome the economic crisis. Because of the recession, the Federal government must accept substantially lower tax revenues for 1966. Erhard is forced to withdraw some of the legislative bills that were subjects of campaign promises. The popularity of the Federal Chancellor thereupon declines considerably.

The revised budget for 1966 submitted by the Federal Government to the Bundestag (Upper House of the Federal Parliament) still contains some gaps. These could be covered only through additional savings or tax increases. In November 1966 Erhard resigns as Federal Chancellor because his coalition partner, the FDP , rejects tax increases and demands instead the reduction of some state subsidies (e.g. for the coal industry). Erhard forms a "grand coalition" between the CDU/CSU and SPD under Federal Chancellor Kurt Georg Kiesinger (CDU). For the first time in the history of the Federal Republic the SPD participates in a Federal government. On December 1, 1966 Willy Brandt is named Federal Foreign Minister and Vice Chancellor by Federal President Heinrich Lübke.