SPD faces pressure from Scholz in budget standoff

The clock's ticking: SPD, Greens, and FDP aim to reach a budget agreement by July 3rd. Chancellor Scholz, Vice-Chancellor Habeck, and Finance Minister Lindner are locked in negotiations, with their respective parties pushing them hard. The SPD is putting the squeeze on the Chancellor, while the FDP is pressuring the entire Traffic Light coalition. Will they make it?

A hero like Niklas Fuellkrug might be what the Traffic Light coalition needs right now. Someone who steps up at the last minute and saves the day. However, the Traffic Light coalition isn't competing in a soccer tournament, but rather trying to secure annual budget approval. The agreement they desperately need is currently more elusive than Fuellkrug's goal. The estimate usually ranges between 25 billion Euros plus X.

Since the European elections two weeks ago, Scholz, Habeck, and Lindner have been discussing the 2025 budget once more. Their target for an agreement is July 3rd, after which a cabinet meeting is scheduled for budget approval. Longer negotiations are possible, but they aren't looking good. A resolution is still not in sight. "We haven't reached the landing zone yet," quoted the "Neue Osnabrücker Zeitung" Lindner over the weekend.

The plane's still in the air, with Scholz, Habeck, and Lindner at the helm. Details about the negotiations remain tightly under wraps. The party faithful are watching closely from above. The tension is palpable. Last week, the SPD-Left launched a membership initiative against what they call a spending budget according to FDP plans. The key issue is the debt brake. Should it be suspended or not? The FDP is just as opposed to it as the SPD is now in favor of it.

SPD in favor of lifting the debt brake, Scholz not

SPD chair Saskia Esken urged against any hasty decisions off the table, including lifting the debt brake, on Monday. She sees the Ukraine war as a valid justification for this. The three major party factions—the conservative Seeheimer Kreis, the Parliamentary Left, and the Berlin Network—spoke out in favor of lifting the brake in a joint statement. "Given the exceptional emergency situations in Ukraine and German flood areas, we should also use the exceptional regulation of the debt brake this year," demand Dorothee Martin (Network Berlin), Matthias Miersch (PL), and Dirk Wiese (Seeheimer Kreis). The SPD remains tight-lipped.

Every statement is closely scrutinized for its potential implications. For example, Scholz's summer interview in the ARD. "We will defend the welfare state. And we will develop it," promised the Chancellor there. This sounded good to SPD ears. After all, that can only mean: More money for social issues than less. And under no circumstances a spending spree, as the FDP would prefer. Even if they call it "prioritizing."

Scholz adopted a typical Lindner term as well. He stated that the "Treffsicherheit" of Citizen's Income should be increased. This means that no one can force anyone to work to overcome unemployment, he explained. "Treffsicherheit" implies targeted assistance for those truly in need. But the problem begins there. Who decides who truly needs help? That's ultimately a question of political beliefs. In this matter, SPD and FDP have never seen eye to eye.

From the SPD's perspective, the term "Treffsicherheit" means one thing: Cuts. And does Scholz claim this term for himself? That might raise some eyebrows in the SPD. But Scholz knows well: Without the Liberals, Red-Green cannot govern. They wouldn't have a majority without the Liberals. This could make him more flexible than his own party can tolerate.

Then there was the sentence about the debt brake. Scholz said it's about "doing our homework first and going through each individual budget item and not looking for an easy way out. The easy way out would be suspending the debt brake." Such formulations might not sit well in the SPD, as they sound like the FDP. Surprisingly, the FDP reiterated their call for this supposedly easy way out the very next day. That wasn't an accident, Scholz doesn't exclude that. "What we'll do when we've done everything and see that there's still a problem to solve, we'll have to talk about it together."

FDP cranks up the volume

For the FDP, touching the debt brake is taboo. They leave no room for doubt: Not with us, never. On this Monday, the party's General Secretary Bijan Djir-Sarai put it this way: "The SPD's fiscal populism, above all, is also dangerous for the future and development of our country." The Chairman of the Young Group of the FDP, Jens Teutrine, told the "Bild" newspaper bluntly: "Without us, without the debt brake."

The Ukraine war, from the FDP's perspective, is not a sufficient reason to suspend it. The war has been ongoing for nearly three years and therefore cannot be a sudden disaster that requires immediate reaction with debt, the Liberals argue. They also point to the recent judgment of the Federal Constitutional Court. They don't want to bear the responsibility for another constitutionally questionable budget.

The bottom line is: If no accord is reached, the Traffic Light Coalition faces collapse. A government that can't agree on spending priorities and where funds are allocated is no longer a functioning government. But reducing expenses by 25 billion euros without affecting social issues seems challenging. Lindner proposes slashing taxes and eliminating the solidarity contribution for all, as well as axing progressive taxation, which would lead to less tax income.

Meanwhile, several departments have called for additional funds. For example, Defense Minister Boris Pistorius requests an extra 6.7 billion Euros for the Bundeswehr. Ministers Annalena Baerbock (Foreign), Nancy Faeser (Interior), and Svenja Schulze (Development Aid) also seek more money. Various budget revisions might save a billion or so here and there, or postpone spending to the following year. However, managing 25 billion could be tough, to put it mildly.

By the way, the FDP also made its voice heard on Monday. The party leadership presented a paper advocating bureaucracy cuts in multiple areas. Reducing bureaucracy is almost as critical to the Liberals as the debt limit. The more bureaucracy reduction a solution contains, the more acceptable it is for the Liberals, but they are unwilling to compromise on the debt limit.

Ultimately, it will come down to finding a compromise that everyone can tolerate. There are still nine days left until the July 3rd cabinet meeting. It feels like the 76th minute in the Germany vs. Switzerland match. But a clear solution is still far from sight. The divide, on the other hand, is becoming more evident by the day.

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Despite the pressure from the SPD, Finance Minister Lindner of the FDP maintains that touching the debt brake is not an option for their alliance within the Traffic Light coalition.
Olaf Scholz, while discussing the budget policy with his coalition partners, including Christan Lindner from the FDP, has adopted the term "Treffsicherheit" to emphasize the need for targeted assistance for those in need, a concept that has been a point of contention between the SPD and FDP in the past.
In an effort to reduce expenses by 25 billion Euros without affecting social issues, as required by the budget agreement, the SPD and SPD-Left have proposed various cost-cutting measures, such as suspending the solidarity contribution and progressive taxation, a proposal that the FDP, led by Christian Lindner, has rejected firmly.