For a country famed for its fiscal responsibility, Germany is behaving in strangely chaotic fashion.
Since the Constitutional Court blocked the accounting trick that would let the ruling coalition to use leftover COVID debt authorization for their climate alarmist policies, the three coalition parties have scrambled to unsuccessfully try to find an urgent solution to the 2024 budget.
They intensified their efforts to find a way to plug a 17-billion-euro ($18.3 billion) hole in next year’s budget, but, after failing to resolve the crisis overnight, uncertainty is rising about financial plans of Europe’s biggest economy.
“The failure of talks between coalition leaders before Wednesday means it is unlikely parliament will approve a 2024 budget by the end of the year, leaving in limbo spending plans from climate projects to benefits and for local authorities.
Social Democrat (SPD) Chancellor Olaf Scholz, Greens Vice Chancellor Robert Habeck and Finance Minister Christian Lindner of the fiscally conservative Free Democrats (FDP), had hoped to get an agreement overnight to put to cabinet on Wednesday.”
Little progress had been made, and the parties were still far apart.
A central question in discussion is whether to lift the ‘debt brake’ on net new borrowing in 2024, a move Financial Minister Christian Lindner fiercely opposes.
“‘You cannot make an emergency situation a normal situation’, Lindner told ARD.”
The ‘debt brake’ is embedded in Germany’s constitution, and it restricts public deficit to 0.35% of gross domestic product – but it can be suspended for ’emergencies’.
“The budget wrangling has raised tensions in the already loveless three-way coalition and polls show the big winners of the crisis are the opposition conservatives and far-right Alternative for Germany (AfD).
If no deal is reached, the coalition could collapse but most observers say it is in all the parties’ interests to hammer out an agreement and stay in power.”
“Few countries are more aware than Germany of how important it is to keep public finances in order. But few countries have indulged in more creative accounting. As Germany’s highest court ruled current spending plans unconstitutional, it finally destroyed the nation’s cherished myth of fiscal prudence. The stakes could not be higher for Germany and its neighbors.
[…] Arguing that the debt brake hampered essential investment, Scholz’s coalition reallocated Covid funds to green projects and industrial subsidies. But a constitutional court ruling declared such relabeling illegal, blowing a €60 billion hole in public finances.”
Economic favors the Right-wing Alternative für Deutschland (AfD), currently the second most popular party, with the preference of over a fifth of the electorate.
“Next year, elections will be held in three eastern German states where the AfD leads the polls. In Thuringia, it might even win outright[…].”