Germany resolves budget crisis after 200 hours of negotiations

Nearly a month has passed since the "shocking" ruling of the German Federal Constitutional Court left a gaping hole in the Western European country's 2024 budget draft.

Berlin’s ruling coalition finally overcame internal rifts on December 13 to work together to overcome the budget crisis that has rocked Europe’s largest economy. The new year’s spending plan included cuts to climate funding, but kept intact a pledge of 8 billion euros ($8.6 billion) in direct military aid to Ukraine.

The new budget plan – which will ensure compliance with German constitutional rules against raising new debt – was hammered out after more than 200 hours of negotiations, including all-night talks, between Chancellor Olaf Scholz's Social Democrats (SPD), Vice Chancellor and Economics Minister Robert Habeck's Greens and Finance Minister Christian Lindner's Free Democrats (FDP).

When the “traffic light” coalition came to power in late 2021, it reallocated €60 billion ($64 billion) of unused Covid-19 pandemic credit to climate protection efforts. However, the Federal Constitutional Court ruled on November 15 that the move was unconstitutional, triggering a series of lengthy negotiations among members of the governing coalition to draft a new budget.

The German government has no intention of reapplying for the funds. Instead, it wants to control public spending even more than it had previously planned, while still not wanting to miss out on achieving its major policy goals.

World - Germany resolves budget crisis after 200 hours of negotiations — Pictured is the German Finance Ministry building. After more than 200 hours of negotiations, including all-night talks, Social Democratic Party (SPD) Chancellor Olaf Scholz, Green Party Vice Chancellor and Economics Minister Robert Habeck and Free Democratic Party (FDP) Finance Minister Christian Lindner announced the new budget plan for 2024 on December 13, 2023. Photo: Local.de

“We are accelerating the country’s climate-neutral transition. We are strengthening social cohesion. And we are standing by Ukraine in its fight against Russia,” Scholz said on December 13. “But it is clear that we will have to spend significantly less money to achieve these goals,” he added.

Released just days before lawmakers go on holiday recess starting December 15, the new budget plan includes cuts to a “special fund” aimed at helping businesses move toward more environmentally friendly practices.

The subsidies pledged for the new chipmaking joint venture between Taiwan's TSMC and European chip companies NXP (Netherlands) and Infineon and Bosch (Germany) will remain in place.

The cuts to funding for solar, climate-neutral heating and electric car purchases “hurt me, but it was the price to pay to keep the key components and pillars of the climate change fund,” Mr Habeck said.

While there has been some criticism of the budget deal from business groups, many agree it is important that a budget is finally in place.

“It is good and important that the federal government has reached an agreement,” Bertram Kawlath, vice president of the VDMA, the mechanical engineering association, said in a statement. “The weeks of uncertainty are now over, paving the way for important investments.”

Meanwhile, Mr. Friedrich Merz, chairman of the opposition CDU/CSU parliamentary group in the German Parliament (Bundestag), harshly criticized the German Government's new draft budget, calling it "a financial policy scam".

Although lawmakers still need to vote on the plan, it is expected to pass as Chancellor Scholz's coalition holds a majority in the Bundestag .

Minh Duc (According to DW, NY Times)

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