There Germany he heads towards one double crisis, economic and political because of the budget? The most pessimistic forecasts assess the government coalition led by Scholz as very fragile and see the path that will have to lead Berlin to finding a solution on the issue as complex. budget 2025.
The German nation, once a virtuous example precisely because of its orderly accounts, seriously risks slipping into the abyss due to a gap of at least 40 billion euros.
Furthermore, the fiscal and economic problems are added to the political ones. The European elections were a disaster for the traffic light coalition leading the country. The combined vote share for the three Government parties fell to just 31%, compared to 52% in the 2021 federal election that brought them to power.
In this fragile context, 40 billion euros they could be the price of an imminent crisis in Germany.
Germany, imminent crisis with a 40 billion budget hole
The German government is approaching a showdown on how to fill a huge financial gap in next year’s budget.
The deadline for adopting the 2025 draft budget in the eurozone’s largest economy is July 3. The date could give rise to a profound crisis in a country already weakened by growth on the verge of recession and by a government without greater popular consensus.
In particular, 40 billion euros is the estimated amount that Chancellor Olaf Scholz and his coalition partners will have to cut in federal spending to close the budget hole.
Within the ruling parties, there is widespread consensus that another bitter budget dispute could be fatal. Last year, Germany was already severely shaken after a bombshell ruling by Germany’s highest court detonated a hole of 60 billion euros in the country’s finances. That ruling limited the government’s ability to draw money from special funds set up to circumvent the constitutional debt brakewhich limits the federal deficit to 0.35% of GDP except in times of emergency.
The consequences of that ruling continue to haunt the governing coalition, now forcing coalition parties to make large cuts to federal spending for 2025.
As highlighted in an analysis by Politico.eu, reaching an agreement that everyone will be happy with seems a remote possibility given the different political priorities within the coalition. Members of the left-wing governing parties – SPD and Greens – are firmly against cuts to social programs and I favor a relaxation of the strict spending rules, while the Free Democrats want to respect those rules.
Lars Klingbeil, leader of the SPD, said the party should give its traditional voters more of what they expect from it: affordable rents, higher wages, good social assistance. And Kevin Kühnert, general secretary of the SPD, warned Lindner against possible cuts in social spending, saying that the savings “they cannot be at the expense of social cohesion”.
The Greens, who fear cuts to climate policies and investments in clean technologies, have made similar demands. Yet the liberals seemed equally combative: “We will have no tax increases and no unconstitutional violations of the debt brake.”
In summary, the coalition parties have little room for fiscal maneuver in a budget that, according to projections, amounts to around 450 billion euros for 2025. Where will the extra 40 billion be cut? Germany can explode in this conundrum.
Defense spending gets Germany in trouble
A key issue of the dispute concerns the defence and how to find the money to pay for Scholz’s promises to rebuild the German army and meet NATO’s spending target of 2% of GDP every year in the future.
Defense Minister Boris Pistorius said that around 6 will be needed in 2025.5 billion euros in military spending additional to meet the government’s defense commitments. To finance these promises, he proposed that a special fund be established outside the normal German budget, arguing that German citizens have a constitutional right to security.
For now, Scholz has sided with Liberal Finance Minister Christian Lindner in rejecting the Defense Minister’s calls to increase annual defense spending to trigger more investment – in effect, postponing a solution until after the 2025 election.
