The situation, both inside and outside Germany, is too complicated for a failure to reach an agreement and plunge the EU’s largest economy into weeks or months of uncertainty. The German government coalition has put aside its many disagreements to push through a budget project that puts an end to months of internal political struggles. The three partners (social democrats, greens and liberals) have given in to agree on a budget that will help Germans overcome “turbulent and difficult times,” said Chancellor Olaf Scholz. The pact, announced this Friday in Berlin after calling the media with just a few hours’ notice, gives a breath of fresh air to a tripartite government that has been greatly weakened after the disastrous results of the European elections.
Scholz presented the main lines of the 2025 budget as a response to the extreme right-wing forces that are on the rise in Germany – AfD came second in the elections of June 9, ahead of the SPD -, neighbouring France and other European countries. “I am watching with concern the second round of the parliamentary elections in France, after these forces have been forced to vote in the elections of June 9, and I am not sure if they will be able to vote in the elections of June 9, but if they are able to vote in the elections of June 9, they will be able … [la ultraderecha] have already come to power in Holland, Belgium and two Scandinavian countries,” he said.
The pressure on the budget negotiations was at its highest after the conservative opposition demanded new elections. This time Scholz and his partners could not afford what happened last year, when the presentation of the budget was delayed for months amid almost daily news of internal fights over cuts. The coalition has succeeded: there is an agreement. But they will not go on holiday in peace because the negotiations are not over. The big figures are known, but the details are still missing, the items that will have to be cut in order to comply with the unavoidable condition set by the finance minister, the liberal Christian Lindner: respect for the debt brake, the constitutional limit on indebtedness.
The total budget amounts to 481 billion euros, with a net debt of 44 billion and a record 57 billion in investment. The budget is accompanied by a series of measures, called a “boosting package” that, according to the government, will achieve an additional half percentage point in growth in 2025; that is, the equivalent of 26 billion euros. Among the measures is the incentive for employees to work beyond retirement age to address the shortage of qualified labour and to help immigrants and refugees to enter the labour market.
The pact respects the debt brake, the mechanism introduced in 2009 in the German Constitution that imposes stricter borrowing limits than those required by Brussels, despite the fact that both the Social Democrats and, above all, the Greens, had asked for it to be relaxed in order to avoid cuts in social items and to support investment. According to Scholz, the tripartite government has ensured that it provides sufficient funding for the Army, so that Germany continues to meet the NATO objective of 2% of GDP and to continue supporting Ukraine with arms. However, the Minister of Defence, Boris Pistorius, had demanded several billion euros more.
The popularity of Scholz’s government has been steadily declining as the legislative term progressed. The pandemic, the Russian invasion of Ukraine, the energy crisis and the stagnation of the German economy have all impacted the cost of living and many Germans are looking for solutions to extremist forces, both on the right and the left. “Germany needs economic growth and solid finances amidst economic and social changes around the world that challenge us,” said the chancellor. “This uncertainty is often reflected in the growth of populist and extremist right-wing forces in many European countries and yes, even here in Germany,” he added.
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The powerful German industry has received the agreement with some reservations. On the one hand, it acknowledges that the fact that it was reached “despite considerable political differences sends at least an encouraging signal of the government’s ability to act in difficult times.” On the other hand, “the budget provides a moderate boost for growth and investment, but does not sustainably strengthen the forces of growth,” criticises Tanja Gönner, director general of BDI, the federation of German industries.
The compromise between the partners, which was reached after a long night of negotiations in Berlin, will be approved by the Council of Ministers on the 17th. By then, the details will have to be more clearly defined. After the summer break, the project will be passed to the Bundestag, the lower house of the German parliament.
Lindner said the government had done everything possible to save money, but argued that it was “not at all” an austerity budget. “The level of investment shows this,” he stressed. Details of these cuts will be revealed in the coming weeks, which are necessary because the leader of the liberals has not wanted to raise taxes either. Despite this, the government assures that it will spend more money on caring for families, on the police, on the creation of housing… “It seems that Olaf Scholz has won the lottery,” said the analyst Jannik Pentz on public television: “But […] He has not yet said where he will get the money from.”
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