German Chancellor Olaf Scholz on Monday lost a vote of confidence in the country's Bundestag, opening the way for early election in February.

Scholz was expected - and hoped - to lose the vote, which he had called for himself in November in order trigger elections earlier than plannedwhich were originally scheduled for autumn 2025.

This marks only the sixth time in the history of Germany that such a vote has been held, and the fourth time that a president has failed the vote.

Scholz said on Monday that he called the vote not only for the parliament but for the entire electorate.

"We dare to be a strong country, to invest strongly in our future," Scholz told lawmakers before the vote, according to a Google translation.

Scholz dismissed the former Minister of Finance Christian Lindner in November, effectively ending Germany's ruling coalition that had been in power since 2021. It was made up of Scholz's Social Democratic Party (SPD), Lindner's Free Democratic Party (FDP) and the Green party.

The SPD and the Green party remained in government as a de facto minority government, and will continue to do so even after Monday's vote, until a new Bundestag is formed. Without the parliamentary majority needed to pass the laws, Scholz is nevertheless considered a lame duck.

The tripartite coalition government was plagued by disagreements over budgetary and economic policy positions. The tension came to a head with a document written by Lindner, in which he described his vision for reviving the German economy. However, the former finance minister also argued against fundamental positions of the SPD and the Green party in the paper.

The parties had also struggled to finalize Germany's budget for 2025 and in the end seemed unable to reach a resolution.

The government is now set to operate under a provisional budget until the current Bundestag implements its own budget - with Germany's finance ministry saying Monday it expects a provisional spending plan for 2025 no earlier than mid- -next year.

German President Frank-Walter Steinmeier now has 21 days to dissolve parliament. Then a new election needs to be held within 60 days of this dissolution, with the date already established February 23rd.

The German constitution sets out a series of procedures aimed at making the collapse of a government as calm as possible and avoiding the political turmoil seen by the Weimar Republic in the 1930s — a tumultuous period that had a major role in the rise of the Nazis in Germany.

The campaign for the 2025 election has already begun, with Germany's parties discussing initial policy proposals around key themes such as immigration, the economy, taxes, the debt brake and social security . Full manifestos are likely to be released in the coming weeks.

The parties also announced which of their candidates they will exploit for chancellor if they win the largest share of votes. Despite the collapse of Scholz's coalition, he was elected as the SPD's candidate for Chancellor, while opposition leader Friedrich Merz will take that role for the CDU.

The CDU, together with its Bavarian affiliate, the Christian Social Union (CSU), are currently leading survey and it looks set to emerge as the largest party, putting Merz in prime position to replace Scholz as chancellor. Then the CDU/CSU is expected to enter into a coalition either with the SPD, or in a less likely scenario with the Green party, to form Germany's next government.

Kallum Pickering, chief economist of Peel Hunt, said Monday that regardless of the outcome of the election, Germany's economic ills are likely to force an eventual agreement on new fiscal support.

"Even if in the first three to six months of the new administration you don't have changes in the debt brake, if they have a large enough majority, eventually I think the economic conditions will force them to accept the reality they need. fiscal stimulus," Pickering told CNBC "Road Signs Europe."

"The moment you get a fiscal stimulus in Germany, I think a lot of things start to look a bit better," he added.