Tension in German budget dispute – will a breakthrough be achieved?
Published: Thursday, Jul 4th 2024, 17:20
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The Social Democrats are pushing, the Liberals do not want to be put under pressure: Whether the negotiations on the 2025 budget in the "traffic light", Germany's governing coalition, will reach an agreement by Friday is still completely open.
Federal Chancellor Olaf Scholz (SPD), Vice-Chancellor Robert Habeck (Greens) and Finance Minister Christian Lindner (FDP) met in the Chancellery this afternoon for another of countless rounds of negotiations in recent months.
Whether it would be the decisive one was still completely unclear at the beginning. Talks were expected to continue deep into the night if necessary. However, they will end shortly before 7.00 a.m. on Friday morning at the latest. Scholz must then go to the SPD parliamentary group to report on the state of affairs - even if there is no breakthrough by then.
Lindner: "We must consult carefully"
The SPD parliamentary group had already scheduled the special session on Wednesday. The reason: it is the last day of the session before the parliamentary summer break and the MPs wanted clarity.
Lindner rejected pressure for a quick agreement. "We must consult carefully. It's about the stability of our public finances in a turbulent world situation," the FDP politician told the dpa news agency.
Turbo statt Wumms
A package of measures is also being negotiated to boost the weak economy. The German chancellor calls it a "growth turbo". He had christened previous aid packages "Wumms" or "Bazooka".
Scholz, Habeck and Lindner actually wanted to reach an agreement by this Wednesday. July 17 is now being discussed for the cabinet decision. In order to reach this date, however, an agreement in principle must be reached soon, as the drafting of the budget law usually takes around ten days. From mid-September, the German parliament will then deal with the draft budget, which could then be passed in November or December.
Still a billion-euro gap
The individual budgets have largely been negotiated, but the social budget is reportedly still the main point of contention. In addition, there is still a gap of around 10 billion euros that needs to be closed. The SPD in particular is pushing for the debt brake to be suspended again in order to have more leeway for investments, in view of the financial burdens caused by the war in Ukraine. This is out of the question for Lindner's FDP. The SPD rejects cuts to the social budget.
It is also about possible cuts to the Climate and Transformation Fund - the German government uses this special fund to finance projects for more climate protection. As a result of a ruling by the Federal Constitutional Court, billions are missing from the fund.
Scholz predicts 1-0 for Germany - and for the traffic lights?
Scholz did not address the budget negotiations at the ceremony to mark the 75th anniversary of the founding of the Association of German Municipal Enterprises in Berlin. In his speech, however, he called for more confidence in Germany in general. "Confidence is the driving force of modernity," he said. Germany is achieving a great deal, especially in difficult times. "All this with an unagitated reliability."
Scholz was also confident about the quarter-finals of the European Football Championship, for which he expects a narrow victory for the German team. When asked what his prediction was, he replied: "Well, 1:0 for Germany." Scholz wants to be there live in Stuttgart on Friday at 6 p.m. when the German team takes on Spain. Whether he will then have an agreement in principle in the budget dispute in his pocket is questionable.
Lindner: Courage to set priorities
Germany's Finance Minister was cautious. "There is still a lot of work to be done," said Lindner at an event in his ministry. "Our country does not have a lack of money, but often just a lack of courage to set priorities."
Lindner once again spoke out in favor of cuts to social spending. Since 2022, social spending has increased by 15 billion euros simply due to the expansion of benefits and the introduction of new benefits. The Finance Minister mentioned the emergency child allowance, the expansion of housing benefit and the Germany ticket for local and regional transport at a price of 49 euros per month. Lindner went on to say that the "economic turnaround" and activation of the labor market would "inevitably" lead to measures in the area of citizen's income.
Package of measures to boost growth
Only minimal growth is expected in Germany this year. Companies are holding back on investments and private consumption is also not picking up. Business associations have long complained about locational disadvantages such as a high tax burden, a shortage of skilled workers and too much bureaucracy.
This is where the government wants to start with the "growth turbo". Scholz had already said that the federal government wanted to promote private investment. He held out the prospect of improved tax depreciation for companies. In addition, the employment of parents should be made easier and work incentives increased, including tax incentives.
Supplementary budget expected
As part of the negotiations on the 2025 federal budget and a growth package, the government is also expected to introduce a supplementary budget for this year. This would give it more financial leeway. As the economy in Germany is weaker than expected, the economic component in the debt brake allows for greater net borrowing. This could involve up to eleven billion euros. So far, net borrowing of 39 billion euros is planned for the current year as part of the debt brake.
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