Chancellor Olaf Scholz's three-party governing coalition has struck a deal on spending for 2024. It comes after a court ruling threw the government's finances into disarray and exposed deep rifts between the parties.
Germany's ruling center-left coalition has managed to strike a political deal on the federal budget for 2024, government sources said on Wednesday.
The agreement comes after a court ruling threw government finances into disarray and exposed deep rifts between the three governing parties.
Chancellor Olaf Scholz, Economy Minister Robert Habeck and Finance Minister Christian Lindner are expected to present the details of the deal later Wednesday.
What caused the budget gap?
Germany's constitutional court ruled on November 15 that the coalition government's decision to reallocate €60 billion ($64.69 billion) of unused debt from the COVID-19 pandemic era to its climate and transformation fund was unconstitutional.
The ruling limited the government's ability to set up and draw money from off-budget special funds to circumvent the constitutional "debt brake," which restricts the annual public deficit to 0.35% of Germany's total economic output.
It blew a big hole in public finances. For the 2024 budget, the government has had to find an additional €17 billion ($18.3 billion) to fill the hole.
How did the ruling affect Scholz's coalition?
The court ruling also raised tensions in Scholz's already fractious three-way coalition, which is made up of the Social Democrats (SPD), the environmentalist Greens and the business-focused Free Democrats (FDP).
The three parties often have contradictory priorities and they have suggested different measures to resolve the budget crisis.
While the SPD and the Greens sound in favor of increasing taxes, the FDP has ruled out tax hikes and instead suggested welfare cuts.
The SPD and the Greens are staunchly against any cuts to social benefits; they instead want to suspend the debt brake again for 2024 to allow for increased government borrowing. But the FDP opposes this move.
Will the parliament pass it by year's end?
Despite the coalition now reaching a political agreement on a draft budget, it's not clear if there will be enough time for the lower house of the German parliament, the Bundestag, to approve it before the end of the year.
The failure to finalize a 2024 budget will result in the government starting next year with a provisional budget.
That means government expenditure will continue and essential services like social benefits, salaries and pensions will be paid out.
But other spending like industrial subsidies will be frozen.
Finance Minister Lindner will also get increased powers as he will have to authorize any new spending.
Source: Dw
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