As the year draws to a close, the budget crisis in Germany persists.

Europe's largest economy is facing a prolonged financial impasse following a shocking ruling by the Federal Constitutional Court – one of Germany's supreme courts – in mid-November.

The ruling raises questions about “special funds” outside the regular federal budget and creates a financial “gap” worth approximately 17 billion euros, which German Chancellor Olaf Scholz’s ruling coalition will struggle to “patch” if it wants to pass the 2024 budget.

On December 7th, Katja Mast, a senior lawmaker from Scholz's Social Democratic Party (SPD), acknowledged that the ruling "traffic light" coalition would not be able to finalize the 2024 budget before the end of this year.

Even if the three-party coalition – comprising the SPD, the Greens, and the Free Democratic Party (FDP) – reaches an agreement on the budget draft in the coming days, Mast said there would not be enough time for them to obtain the necessary approval from the German Parliament (Bundestag) before the end of 2023.

Pressure is mounting on Chancellor Scholz, Economy Minister Robert Habeck, and Finance Minister Christian Lindner – each representing a party in the ruling coalition with often conflicting priorities – to quickly reach an agreement on a budget deal that could be approved by the German Parliament in early January.

The fact that the German government has yet to reach a budget agreement further highlights the deep rifts within the ruling coalition.

World - As the year draws to a close, Germany's budget crisis persists. — A street scene in Frankfurt am Main, Europe's financial capital in western Germany, on November 20, 2023. Photo: Euronews

The Green Party and the SPD want to maintain subsidies, such as those to accelerate the clean energy transition and promote the construction of microchip and battery manufacturing plants in Germany.

Meanwhile, to compensate for the aforementioned €17 billion deficit, the FDP party led by Lindner wants to cut spending and reduce subsidies. Lindner does not believe that Germany can guarantee competitiveness, prosperity, and social welfare through such subsidies.

The trio of Scholz, Habeck, and Lindner agreed to resume budget negotiations after the Finance Minister returned from a meeting with European Union (EU) partners in Brussels.

With the goal of getting the Cabinet to pass a new budget and send it to Congress for approval by the end of December becoming "out of reach," Lindner will have to devise a temporary plan to keep the government running through the first few months of 2024.

"I have noted that the coalition partners have a very ambitious timetable, but it would not be a crisis if we did not have budget legislation until next year," Lindner told reporters in the Belgian capital on December 7.

"The government is fully capable of functioning, no government agency will have to shut down, no salaries will go unpaid, and no one will be left without the financial support they are expecting," Lindner added.

When asked whether investors should be concerned about budgetary uncertainty in Europe's largest economy, Lindner stressed that Germany remains a "steady anchor" with a declining debt-to-GDP ratio and a narrowing annual deficit.

"The best place to invest right now is Germany," Minister Lindner affirmed.

Mr. Scholz, Mr. Habeck, and Mr. Lindner are expected to meet on the evening of December 10th to finalize the 2024 budget agreement, after which they may present it to the media on the morning of December 11th .

Minh Duc (According to Politico EU, Bloomberg)

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