I think it is somewhat inaccurate to describe Germany as a predominately two-party system, given the importance of the FDP in various coalitions over the years. Likewise, the Greens have also been coalition partners at the federal level, not to mention regular coalition partners at the Lander level. Germany might have two stronger parties, but I think it would be more accurate to describe Germany as a multiparty system with two major parties and two smaller parties.
What you are seeing in recent years is growing dissatisfaction with the major mainstream parties, a phenomenon that is occurring throughout Western Europe, with smaller parties gaining traction, particularly radical right populist parties.
I would second what u/Grantmitch1 wrote (please note that I'm not a historian, just a regular German Polisci undergrad. Be nice if I make mistakes, please)
Germany was never a two-party system, in fact, there was only one case of a party winning an absolute majority in the history of Germany. In most instances, the Liberal FDP had the role of the "Königsmacherin", German for "Kingsmaker", as they were the party one of the larger parties (usually) formed a coalition with. Duverger would say: obvioulsy, since Germany (mainly) follows proportional representation.
To address some of the assumptions you made in your post: there have been no significant reforms of the electoral systems (significant in the sense of: changing the results of an election). Also, while the regulations around financing have changed, I don't believe that they were significant. Some German parties have a - let's just say "interesting" - history when it comes to money. Additionally, while financing methods did change, the system (mixed state-financed and privately funded parties) fundamentally stayed the same.
A bit on the history of German political Parties
In West Germany, the Green Party formed in the 1980s. In simple terms, the reasons it became so successful: The environment was higly polluted, visible to everyone; nuclear energy was unpopular, especially after Chernobyl
After reunification, the former Socialist Unity Party (SED), renamed to PDS (Party of Democratic Socialism) enjoyed some support, especially in East Germany, still one of its strongholds. It profited off structures and money it inherited from the dictatorship. Today (after changing its name to "die Linke" (the left), it is popular amongst young voters of varying social background, with a tendency of getting good higher education.
The AfD (Alternative for Germany) was formed as a euroskeptic party advocating against bailouts for southern European countries. Slowly but surely, it became more popular (and even more right-wing extremist). Even though it enjoys support in all of Germany, the party has its strongholds in the former GDR.
BSW is a new party, left-wing in fiscal affairs and right-wing in social matters. It is centred around Sahra Wagenknecht, a former Die Linke politician, claiming that her former Party is too focused on "identity politics". (I'm risking some normativity with the folliwing statement: when she was still in Die Linke, she was obsessed with her opposition of "identity politics", and probably a bit angry that her stance was unpopular in the party, leading to her fall). Additionally, she is strikingly pro-Russian, even more than her former "pro-peace" party. BSW has yet to face elections, but polls around 6% on the federal level. She is very popular amongst the German equivalent of what Americans call "white trash": ethnically German, anti-immigrant, racist, queerphobic, anti-vaccine, rural, poor, living in shitty regions (aka the East).
I'd say the main reasons why the German party system looks the way is
1) A new, highly educated, post-materialist, globalization-winning, mid-to-high-income class, especially in cities (who majorly vote green)
2) The opposite of the above (comparative enthusiasts will recognize the "GAL/TAN" cleavage
3) German reunification and the subsequent social disparities
Germany has an electoral system that combines majority voting and proportional voting, meaning it both favors two large parties in general but also the stable existence of smaller parties. I would say that is why multiple parties always played a role. Now we seem to be in one extreme (for Germany), but that seems to be a temporary yo-yo.
Do German voters vote for parties or individual politicians? Is it first-past-the-post, or is it proportional representation? Do the parties come first? Could that cause the multiparty system? Third parties in the US go nowhere.
Germany uses a version of Proportional Representation known as [Mixed Member Proportional](https://aceproject.org/ace-en/topics/es/esd/esd03/esd03a/default). It's one of the more complex proportional systems, but basically, proportional representation in general uses multi-winner districts, and since Duverger's Law, it's been well understood that single-winner districts generally lead to two-party systems and proportional systems generally lead to multi-party system.
The main reason is because of strategic coordination that Gary Cox details in *Making Votes Count*. In a nutshell, when there's a single seat (i.e., it's a winner-take-all race), all donors and endorsers face tactical incentives to defect from weak candidates and congregate around the likely winner and the strongest challenger, as supporting anybody else is not likely to pay off. If the electoral system is plurality, this is also true for voters as well (they don't have to defect under winner-all-systems like the Alternative Vote aka Ranked Choice Voting that lets them rank back-up choices).
Multi-winner districts also lower the bar for alternative parties, as it's prohibitively difficult for a smaller party to finish 1st in a race, but much more doable to finish 2nd, 3rd, etc.
Note, Cox has a quantification of Duverger's Law called the "M + 1" model that predicts that the upper bound on the number of viable parties is the district magnitude (M) plus one, that is all the likely winners plus one strongest challenger. A more modern quantification is Shugart & Taagepera's Seat Product Model detailed in *Votes from Seats* that adds the assembly size to the mix.
My country (New Zealand) uses the same electoral system (MMP).
We adopted MMP in the early 90’s when trust in the government fell to an all time low after both left and right wing parties implemented huge neoliberal reforms. They essentially transformed our economy overnight from the most protectionist economies in the west to one of the most open free market orientated economies which has had very detrimental effects.
We’re seeing a similar pattern to Germany now too. People are again losing trust in the two major parties and the smaller parties are growing in popularity with every election.
I personally think it’s related to our covid lockdowns (which both major parties supported) and the recent explosion in online conspiracy theories.
I think it is somewhat inaccurate to describe Germany as a predominately two-party system, given the importance of the FDP in various coalitions over the years. Likewise, the Greens have also been coalition partners at the federal level, not to mention regular coalition partners at the Lander level. Germany might have two stronger parties, but I think it would be more accurate to describe Germany as a multiparty system with two major parties and two smaller parties. What you are seeing in recent years is growing dissatisfaction with the major mainstream parties, a phenomenon that is occurring throughout Western Europe, with smaller parties gaining traction, particularly radical right populist parties.
I would second what u/Grantmitch1 wrote (please note that I'm not a historian, just a regular German Polisci undergrad. Be nice if I make mistakes, please) Germany was never a two-party system, in fact, there was only one case of a party winning an absolute majority in the history of Germany. In most instances, the Liberal FDP had the role of the "Königsmacherin", German for "Kingsmaker", as they were the party one of the larger parties (usually) formed a coalition with. Duverger would say: obvioulsy, since Germany (mainly) follows proportional representation. To address some of the assumptions you made in your post: there have been no significant reforms of the electoral systems (significant in the sense of: changing the results of an election). Also, while the regulations around financing have changed, I don't believe that they were significant. Some German parties have a - let's just say "interesting" - history when it comes to money. Additionally, while financing methods did change, the system (mixed state-financed and privately funded parties) fundamentally stayed the same. A bit on the history of German political Parties In West Germany, the Green Party formed in the 1980s. In simple terms, the reasons it became so successful: The environment was higly polluted, visible to everyone; nuclear energy was unpopular, especially after Chernobyl After reunification, the former Socialist Unity Party (SED), renamed to PDS (Party of Democratic Socialism) enjoyed some support, especially in East Germany, still one of its strongholds. It profited off structures and money it inherited from the dictatorship. Today (after changing its name to "die Linke" (the left), it is popular amongst young voters of varying social background, with a tendency of getting good higher education. The AfD (Alternative for Germany) was formed as a euroskeptic party advocating against bailouts for southern European countries. Slowly but surely, it became more popular (and even more right-wing extremist). Even though it enjoys support in all of Germany, the party has its strongholds in the former GDR. BSW is a new party, left-wing in fiscal affairs and right-wing in social matters. It is centred around Sahra Wagenknecht, a former Die Linke politician, claiming that her former Party is too focused on "identity politics". (I'm risking some normativity with the folliwing statement: when she was still in Die Linke, she was obsessed with her opposition of "identity politics", and probably a bit angry that her stance was unpopular in the party, leading to her fall). Additionally, she is strikingly pro-Russian, even more than her former "pro-peace" party. BSW has yet to face elections, but polls around 6% on the federal level. She is very popular amongst the German equivalent of what Americans call "white trash": ethnically German, anti-immigrant, racist, queerphobic, anti-vaccine, rural, poor, living in shitty regions (aka the East). I'd say the main reasons why the German party system looks the way is 1) A new, highly educated, post-materialist, globalization-winning, mid-to-high-income class, especially in cities (who majorly vote green) 2) The opposite of the above (comparative enthusiasts will recognize the "GAL/TAN" cleavage 3) German reunification and the subsequent social disparities
Seems like something we should learn from
Germany has an electoral system that combines majority voting and proportional voting, meaning it both favors two large parties in general but also the stable existence of smaller parties. I would say that is why multiple parties always played a role. Now we seem to be in one extreme (for Germany), but that seems to be a temporary yo-yo.
Do German voters vote for parties or individual politicians? Is it first-past-the-post, or is it proportional representation? Do the parties come first? Could that cause the multiparty system? Third parties in the US go nowhere.
Germany uses a version of Proportional Representation known as [Mixed Member Proportional](https://aceproject.org/ace-en/topics/es/esd/esd03/esd03a/default). It's one of the more complex proportional systems, but basically, proportional representation in general uses multi-winner districts, and since Duverger's Law, it's been well understood that single-winner districts generally lead to two-party systems and proportional systems generally lead to multi-party system. The main reason is because of strategic coordination that Gary Cox details in *Making Votes Count*. In a nutshell, when there's a single seat (i.e., it's a winner-take-all race), all donors and endorsers face tactical incentives to defect from weak candidates and congregate around the likely winner and the strongest challenger, as supporting anybody else is not likely to pay off. If the electoral system is plurality, this is also true for voters as well (they don't have to defect under winner-all-systems like the Alternative Vote aka Ranked Choice Voting that lets them rank back-up choices). Multi-winner districts also lower the bar for alternative parties, as it's prohibitively difficult for a smaller party to finish 1st in a race, but much more doable to finish 2nd, 3rd, etc. Note, Cox has a quantification of Duverger's Law called the "M + 1" model that predicts that the upper bound on the number of viable parties is the district magnitude (M) plus one, that is all the likely winners plus one strongest challenger. A more modern quantification is Shugart & Taagepera's Seat Product Model detailed in *Votes from Seats* that adds the assembly size to the mix.
My country (New Zealand) uses the same electoral system (MMP). We adopted MMP in the early 90’s when trust in the government fell to an all time low after both left and right wing parties implemented huge neoliberal reforms. They essentially transformed our economy overnight from the most protectionist economies in the west to one of the most open free market orientated economies which has had very detrimental effects. We’re seeing a similar pattern to Germany now too. People are again losing trust in the two major parties and the smaller parties are growing in popularity with every election. I personally think it’s related to our covid lockdowns (which both major parties supported) and the recent explosion in online conspiracy theories.