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Time is running out for budget agreement: possible scenarios

2023-12-05T15:16:14.413Z

Highlights: Time is running out for budget agreement: possible scenarios. Will the debt brake hold? Will major projects be cancelled? Probably, all partners will have to swallow bitter pills. It seems unlikely that the traffic light government will agree on small-scale austerity projects to scrape together the missing billions. One reason for this could be the Ukraine war - so that he could be put at least at least directly in the direct support of the Bundestag, says Christian Lindner, the FDP's finance minister.



Status: 05.12.2023, 16:06 PM

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For days, Chancellor Olaf Scholz has been wrestling with Vice Chancellor Robert Habeck and Finance Minister Christian Lindner to find ways out of the billion-dollar hole in the budget. © Michael Kappeler/dpa

At the highest executive level, the traffic light is wrestling with the budget for the coming year. Will the debt brake hold? Will major projects be cancelled? Probably, all partners will have to swallow bitter pills.

Berlin - With every hour without agreement, the pressure on the leaders of the traffic light government to plug the billion-dollar hole in the budget is growing. If it wants 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 there will be key data until the meeting of the cabinet.

According to Lindner, after the ruling of the Federal Constitutional Court three weeks ago, there is a shortfall of around 17 billion euros in the federal budget for the coming year. Germany's highest court had declared the reallocation of 60 billion euros null and void. The money had been approved as a Corona loan, but was later to be used for investments in climate protection and the modernization of the economy. In addition, the judges ruled that the federal government may not set aside loans approved in emergencies for later years.

Since then, the coalition partners of the SPD, the Greens and the FDP have been wrestling over the budget for 2024. Where are cuts being made? Or can the problem be solved with new loans? There is a great deal of uncertainty in the business community and among social associations as to what will become of funding programmes and promised funds.

Baerbock warned: "At a time when crises are collapsing one after the other, we as strong democracies must show that we are able to act to the maximum even in times of crisis." At the moment, everything seems possible, from a breakthrough to a veritable government crisis. Conceivable scenarios:

Agreement on austerity measures

FDP leader Lindner wants to scrape together the money through a strict austerity course. He mentions three cost blocks: social affairs, including the citizens' allowance, international financial aid and unspecified funding programmes. The planned increase in the citizens' allowance must be reconsidered in view of the inflation trend, says the FDP.

These demands were rejected by Social Affairs Minister Hubertus Heil. It is "morally irresponsible and incompatible with the constitution" to deny those affected an adjustment of the standard rates, explained the SPD politician. Government spokesman Steffen Hebestreit also said: "I don't know that there are plans within the federal government to change anything about the legal basis."

The SPD and the Greens are also opposed. "The costs for food, energy, school supplies, for daily needs have risen significantly in recent years," Green Party leader Ricarda Lang told the German Press Agency. Therefore, the increase is still correct.

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The Greens, on the other hand, want to save on climate-damaging subsidies. In the "Handelsblatt", the Federal Environment Agency pleaded 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 traffic light government will agree on enough small-scale austerity projects to scrape together the missing billions. The same applies to the renunciation of major prestige projects.

Agreement on new emergency loans

The SPD and the Greens are calling for the debt brake to be suspended in the coming year and for more loans to be taken out. For this, the Bundestag would have to declare an emergency. One reason for this could be the Ukraine war - so that at least direct support could be put before the debt brake.

Lindner is not convinced of this so far, also because he fears that the federal government will end up in court again. An action by the Union would be very likely.

Experts also consider a renewed suspension of the debt brake to be at least risky. Legal scholar Hanno Kube said in a hearing of the Budget Committee that the requirements for an emergency decision increase the longer the situation persists. This is because a budget legislator can adapt to longer-lasting situations. Over time, the financing will then become a regular state task.

Conclusion: It is unlikely that the FDP will agree to a suspension of the debt brake - without a round of austerity.

Habeck advisers see need for reform of budget policy

Advisors to Federal Minister of Economics Robert Habeck (Greens), however, warn of a dramatically increasing pressure on public finances due to the aging of society. At the same time, among other things, digitalisation and climate-friendly conversion must be managed, writes the scientific advisory board at the ministry in a report. The Advisory Board is a body of scientists who provide independent advice to the Minister.

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 defence and foreign policy as well as infrastructure. The scientists argue for a far-reaching reform of the debt brake.

Mixed solution with bitter pills for everyone

The most likely option at the moment is a mixed solution, in which each coalition partner would have to swallow a bitter pill. For example, only direct support for Ukraine could be brought before the debt brake with an emergency resolution.

At the same time, there could be cuts in the increase in citizens' money, which is particularly important to the SPD. Of the projects of the Greens, one could approach the basic child benefit planned from 2025 by Family Minister Lisa Paus. Lindner has already emphasized that the plans for 2024 and 2025 must be considered as a whole.

The tight schedule

Ideally, the traffic light coalition would like to finalise the budget 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. Then everything would go to the Committee on Budgets.

He needs several days to deal with the documents, so he would not conclude his clean-up meeting until next week. The Bundestag could then convene in the week before Christmas for a special budget week and make a final decision. The green light in the Federal Council could then be given around 22 December.

It is also being negotiated that a political agreement will be reached before Christmas - but then it will not be voted on in the Bundestag until January. Scholz could probably live with that, too. It is possible that the Committee on Budgets could at least fix the budget in a clean-up meeting.

Postponement to 2024

This is also a variant that Lindner and the FDP in particular could live with. Then, at the beginning of January, provisional budget management would apply, only necessary expenditure would be allowed. But the situation could grow into a real government crisis if there is no longer any pressure to reach an agreement.

Then it would also be conceivable that one of the partners loses his nerve and wants to get out. But this is not expected at the moment, as the current polls do not mean that any of the three parties would benefit from a collapse of the coalition. Dpa

Source: merkur

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