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Can big-business interests co-exist with an urgent climate fightback? That's one of the core questions of our time—and Germany may soon provide the answer.

The country held federal elections on Sunday, and the results suggest a radical and perhaps permanent realignment of the German political landscape. The new reality isn't in sharp focus yet, but the balance of power seems to now rest in the hands of left-wing environmentalists and right-wing defenders of capitalism. Everything now depends on their ability to cooperate—or not.

All change

The center-right Christian Democrats (CDU) and the center-left Social Democrats (SPD) have traditionally held the status of Volksparteien, or people's parties. For now, they remain the biggest beasts on the scene, but with significantly lower shares of the vote than they have traditionally won.

The CDU and its Bavarian partner party, the Christian Social Union (CSU)—the two operate in tandem on the national stage—got their worst postwar result, with 24% of the vote between them. The SPD emerged from the election with a share of nearly 26%, making it the biggest party in the Bundestag, but that's a far cry from the 38.5% it won in 2002, the last time it came out on top.

The Greens came in third, with nearly 15% of the vote—a historically large share of the vote, albeit disappointing for a party that was polling around 25% earlier this year. The right-leaning, liberal Free Democrats (FDP) won fourth place with around 11.5% of the vote; its best performance in over a decade.

Future-gazers will be intrigued to note that first-time voters opted overwhelmingly for the FDP (23%) and Greens (22%), with the SPD and CDU/CSU trailing behind with 15% and 10% respectively, and the far-right Alternative for Germany (AfD) and far-left Left party (Die Linke) scoring single digits. This suggests that, for the foreseeable future, German politics will be a four-way tussle in which the fringes will not be involved.

That future begins now, with the formation of Germany's next governing coalition.

The SPD and CDU/CSU could theoretically form another "grand coalition," like those that have comprised three of outgoing Chancellor Angela Merkel's four governments, but both sides have all but ruled that out. Meanwhile, Die Linke's poor showing on Sunday—it just failed to reach the 5% threshold under Germany's proportional representation system—means there will be no "red-red-green" leftist coalition with the SPD at the helm.

That means the next government will almost certainly be a three-way coalition featuring both the Greens and the FDP. Those two parties are now Germany's joint kingmakers—they will effectively get to decide whether the SPD's Olaf Scholz or the CDU's Armin Laschet get to be the next chancellor. As FDP leader Christian Lindner said after the polls closed on Sunday evening, the first thing he is going to do is talk to the Greens about what to do next. Annalena Baerbock, the Greens' co-leader and candidate for chancellor, agreed.

New deal

In Germany, three-way coalitions (a longstanding reality in states, but not on the federal level since the 1950s) have nicknames corresponding to the parties' colors—black for the CDU/CSU, red for the SPD, green for the Greens, yellow for the FDP. If the Greens and FDP decide to support the Social Democrats, this would be known as a "traffic-light" coalition. If they opt to prop up the conservatives, that would be "Jamaica" (a flag reference.)

Neither the Greens nor the FDP are exactly single-issue parties, but both have core stances on which they are unlikely to compromise. For the Greens, it's all about urgently combating the climate crisis, while the liberals have drawn a line in the sand regarding tax hikes for corporations and the rich.

With the science of climate change not being up for debate in Germany—a country that got hit by catastrophic flooding less than two months ago—both the Greens and FDP (and indeed all the other big parties) agree that more needs to be done on that front. They also both want to speed up Germany's digitalization.

The question is, how to pay for all the necessary investment? The Greens would want the German government to take the lead with a relaxation of borrowing limits, while the FDP would rather trust the markets and wants to expand, not ditch, the German "debt brake." On the European stage, the Greens want fiscal union; the liberals most certainly do not.

So, before they decide whether to back a traffic-light or Jamaica configuration, these two parties must first figure out if they can build a bridge between themselves. They have tried this before, unsuccessfully. However, that experience could actually make a deal more likely this time round.

In 2017, Merkel tried to organize a Jamaica coalition. The CDU, Greens and FPD spent months in talks before Lindner abruptly walked out, citing differences over environmental and migration policy—he said the Greens' heavily pro-immigration stance would play into the hands of the far-right AfD, which was surging at the time. As a result, the CDU/CSU and SPD ended up forming another grand coalition, which neither side wanted.

The experience battered Lindner's reputation and, if he wants the FDP to be seen as a party of power rather than obstinacy—and if he wants to get the finance-minister post that he so covets—he needs to be more compromising this time. The Greens have already indicated that, as long as the climate fightback begins in earnest, they are willing to compromise on other points.

The world's eyes may be on the contest between Scholz and Laschet for the post of chancellor—a role that Merkel will continue to play until a deal is sealed—but what happens behind the scenes now could prove more instructive.