German budget crisis talks enter crunch week

Published On : 12/04/2023

BERLIN (Reuters) – German Chancellor Olaf Scholz, Finance Minister Christian Lindner and Economy Minister Robert Habeck held talks over the weekend to try to agree a budget for 2024 after a constitutional court ruling threw the government’s finances into disarray.

Habeck also cancelled his trip to global climate talks in Dubai as the three-way coalition works through key decisions, including whether to suspend self-imposed debt limits again next year and how to balance pro-industry and welfare spending.

Here are five leading scenarios of what happens next:

A SOLUTION BY WEDNESDAY

The talks between Scholz, Habeck and Lindner will continue on Monday evening after the end of German-Brazil government consultations. Scholz has also cancelled a visit to an Airbus event in Bavaria scheduled for Tuesday to free up more time.

If the agreement is reached on Tuesday, then it can be presented to cabinet on Wednesday.

Then, according to the government’s assessment, the deadlines for parliamentary procedure could be met and a first reading of the 2024 budget could take place in the Bundestag in the week starting Dec. 11.

Or, in order to give parliament and the opposition more time, the budget could be passed in the lower house in the week before Christmas and then approved by the upper house in a special session.

Scholz’s Social Democrats (SPD) and the Greens party would prefer this scenario. But the Free Democrats party (FDP), to which Lindner belongs, says it does not want to be pushed into making quick decisions.

Some in the SPD have argued for raising taxes to cover budget shortfalls caused by the court ruling last month, while the FDP wants to find budget savings.

NO FORMAL DECISION THIS WEEK

The talks drag on and Scholz and his ministers only reach a deal by the week starting Dec. 11. A cabinet meeting then takes place before Christmas but the agreement will not be presented to parliament until next year.

In this scenario, federal states and municipalities may complain they would have no certainty of what funding to expect.

POLITICAL DECISION BEFORE CHRISTMAS

A political agreement is delayed until just before Christmas as Scholz and his ministers search for a solution on issues such as suspending the debt brake, budget savings and medium-term financial planning up to 2028.

This would leave no time before Christmas for cabinet decisions and risk dragging squabbles within the coalition into the new year.

NO AGREEMENT THIS YEAR

This scenario is seen as dangerous in all three coalition parties, as public squabbles over the budget will drag on into the Christmas break and likely push down the parties’ already sagging polling numbers.

It would also likely draw louder complaints from local authorities, businesses and federal states.

NO AGREEMENT AT ALL

If the SPD, Greens and FDP do not agree on a budget in January, the coalition could collapse. “Because everyone knows this, this case will not happen – no matter how complicated the discussions are at the moment,” said a government source, speaking on condition of anonymity.

(Reporting by Andreas Rinke; writing by Matthias Williams; editing by Barbara Lewis)

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