Federal Government - Time for budget agreement is running out: possible scenarios
With every hour that passes without an agreement, the pressure on the leaders of the traffic light government to plug the billion-euro hole in the budget grows. If they want to approve the budget for the coming year, a solution must be found in the next few hours.
Chancellor Olaf Scholz(SPD), Finance Minister Christian Lindner (FDP) and Vice-Chancellor Robert Habeck (Greens) are doing everything they can "to ensure that we can adopt the 2024 budget as soon as possible", said Foreign Minister Annalena Baerbock (Greens). However, she left open whether key data will be available before the cabinet meeting.
According to Lindner, around 17 billion euros are missing from the federal budget for the coming year following the ruling of the Federal Constitutional Court three weeks ago. Germany's highest court had declared the reallocation of 60 billion euros null and void. The money had been approved as a coronavirus loan, but was later to be used for investments in climate protection and modernizing the economy. The judges also ruled that the federal government may not set aside loans approved in emergency situations for later years.
Since then, the coalition partners of the SPD, Greens and FDP have been wrestling over the budget for 2024. What can money still be spent on? Where will cuts be made? Or can the problem be solved with new loans? There is great uncertainty in the economy and among social associations as to what will become of funding programs and promised funds.
Baerbock warned: "At a time when crises are collapsing on top of each other, we as strong democracies must show that we have maximum capacity to act even in times of crisis." At the moment, anything from a breakthrough to a veritable government crisis still seems possible. Possible scenarios:
Agreement on austerity measures
FDP leader Lindner wants to scrape together the money through a strict austerity course. He names three cost blocks: social issues, including the citizens' income, international financial aid and unspecified support programs. The FDP believes that the planned increase in the citizen's income should be reconsidered in light of inflation.
Social Affairs Minister Hubertus Heil rejected this demand. It would be "morally irresponsible and incompatible with the constitution" to deny those affected an adjustment of the standard rates, explained the SPD politician. Government spokesperson Steffen Hebestreit also said: "I am not aware of any plans within the federal government to change the legal basis."
The SPD and the Greens are also opposed to this. "The cost of food, energy, school supplies and everyday necessities has risen significantly in recent years," said Green Party leader Ricarda Lang to the German Press Agency. The increase is therefore still the right thing to do.
The Greens, on the other hand, want to cut climate-damaging subsidies. The Federal Environment Agency pleaded in the Handelsblatt for restrictions on the so-called diesel privilege and the commuter allowance as well as for the abolition of the company car privilege, which critics believe promotes the sale of large combustion cars and benefits upper income groups. However, the FDP is unlikely to go along with this.
Conclusion: It seems unlikely that the coalition government will agree on enough small-scale savings projects to scrape together the missing billions. The same goes for abandoning large prestige projects.
Agreement on new emergency loans
The SPD and the Greens are in favor of suspending the debt brake next year and taking out more loans. This would require the Bundestag to declare an emergency. One justification for this could be the war in Ukraine - so that at least direct support payments could be put before the debt brake.
Lindner is not convinced of this so far, partly because he fears that this would land the federal government in court again. A lawsuit by the CDU/CSU would be very likely.
Experts also consider a renewed suspension of the debt brake to be risky to say the least. Legal expert Hanno Kube said at a hearing of the Budget Committee that the requirements for an emergency resolution increase the longer the situation persists. This is because a budget legislator can prepare for situations that last longer. Over time, financing would then become a regular government task.
Conclusion: It is unlikely that the FDP will agree to a suspension of the debt brake - without a round of savings.
Habeck advisors see need for reform in budget policy
Meanwhile, advisors to Federal Economics Minister Robert Habeck (Greens) are warning of dramatically increasing pressure on public finances due to the ageing of society. At the same time, digitalization and climate-friendly restructuring need to be tackled, writes the Ministry's scientific advisory board in a report. The advisory board is a committee of scientists who advise the minister independently.
The advisory board assumes that in 2040, significantly more than half of the federal budget will have to be spent on pensions alone. At the same time, however, money must also be spent on important areas such as defense and foreign policy as well as infrastructure. The scientists advocate a far-reaching reform of the debt brake.
Mixed solution with bitter pills for all
The most likely option at present is a mixed solution in which each coalition partner would have to swallow a bitter pill. For example, only the direct support payments for Ukraine could be pulled before the debt brake with an emergency resolution.
At the same time, there could be cuts to the increase in citizens' income, which is particularly important to the SPD. One of the Greens' projects could be the basic child insurance planned by Family Minister Lisa Paus from 2025. Lindner has already emphasized that the plans for 2024 and 2025 must be considered as a whole.
The tight schedule
The coalition would prefer to have the budget signed and sealed before the end of the year. The cabinet would then have to approve it on Wednesday in the regular meeting or later in the so-called circulation procedure. Everything would then go to the Budget Committee.
The committee would need several days to deal with the documents, meaning that it would not complete its review meeting until next week. The Bundestag could then meet in the week before Christmas for a special budget week and make a final decision. The Bundesrat could then give the green light on December 22.
Another possibility is that a political agreement is reached before Christmas - but then not voted on in the Bundestag until January. Scholz could probably live with that too. It is possible that the Budget Committee could at least finalize the budget in an adjustment meeting.
Postponement to 2024
This is another option that Lindner and the FDP in particular could live with. A provisional budget would then apply at the beginning of January and only necessary expenditure would be permitted. However, the situation could escalate into a real government crisis if there is no longer any pressure to reach an agreement.
It would then also be conceivable that one of the partners would lose their nerve and want to pull out. However, this is not currently expected, as none of the three parties would benefit from a collapse of the coalition given the current poll figures.
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- The tight schedule adds to the urgency of finding a solution, as the coalition aims to approve the budget before the end of the year.
- If a government crisis were to occur, none of the three coalition parties would benefit due to their current poll figures.
- The Federal Economic Minister's advisors warn of increasing pressure on public finances due to societal aging, requiring a far-reaching reform of the debt brake.
- The SPD and Greens propose using emergency loans to suspend the debt brake next year and address the budget deficit, but the FDP opposes this.
- The FDP leader Lindner wants to fill the budget hole through austere measures, targeting social issues, international financial aid, and support programs.
- The Greens suggest reducing climate-damaging subsidies, such as the diesel privilege and commuter allowance, but the FDP is unlikely to agree.
- Hubertus Heil, the Social Affairs Minister, rejects the FDP's proposal to reconsider the increase in the citizen's income due to inflation, citing moral and constitutional issues.
- The SPD and Greens argue that the increase in the citizen's income is necessary due to rising costs, including food, energy, and school supplies.
- Luisa Neubauer, environmental activist and Green Party advocate, supports the Greens' stance on climate-friendly measures, emphasizing their importance in addressing current crises.
- The Bundestag must declare an emergency to authorize new emergency loans, as the coalition considers this an option, but it risks a legal challenge from the CDU/CSU.
- The Coronavirus pandemic has significantly impacted Germany's budget, leading to disputes over austerity measures and the use of emergency funds among coalition partners.
Source: www.stern.de
