Germany's coalition government had grand plans for the modernization of the country. But the war in Ukraine has far-reaching and costly implications. Now bickering about money is throwing a spanner in the works.
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Beefing up the military, phasing out fossil fuels, modernizing infrastructure, reforming the social benefits system, the education sector, health and the pension system... The German government has a long list of urgent projects. And all of them come with a hefty price tag.
The various ministries' wishes add up to around €70 billion ($74,3 bio) but Finance Minister Christian Lindner is digging his heels in.
He was set to present the key points for his 2024 federal budget to the chancellor and his ministerial colleagues in mid-March. But with his coalition partners unwilling to accept austerity measures, that appointment was unceremoniously scrapped.
"We will have to talk about financial realities again in the Cabinet," the finance minister stressed. From his point of view, there is simply no money left for most of the projects the coalition had agreed upon when it came to power in December 2021.
An estimated 30 bills are currently on hold because the three coalition partners — Chancellor Olaf Scholz's center-left Social Democrats (SPD), the Greens, and the neoliberal Free Democrats (FDP) — do not agree. Since the projects are not prioritized in the coalition agreement, each party believes that its respective political concerns should have priority.
German government budget sticking points
Germany's three-party coalition government is hammering out its budget for 2024. But some 30 measures are disputed. Here's what the parties can't agree on.
Image: Kay Nietfeld/dpa/picture alliance
Fossil fuel heating phase-out
Vice-Chancellor and Economy Minister Robert Habeck (Greens) has said he wants to bring forward by one year a ban on the installation of new oil or gas heating systems. This measure, agreed in the coalition treaty, is to apply from 2024. Old heating systems are to be replaced by 2045. The neoliberal FDP deplores the hefty price tag for German property owners.
Image: Goldmann/picture alliance
Phasing out combustion engines
The Greens and SPD are in line with the European Union in its plans to phase out new cars with combustion engines, in favor of electric cars. But the FDP wants to see an exemption for cars that use synthetic fuels or "e-fuels" which is seen as pandering to German car makers. Transport Minister Volker Wissing (FDP) has thrown a spanner into the works of the EU's Green Deal.
Image: Silas Stein/dpa/picture alliance
Infrastructure: Autobahn versus rail
The FDP, which heads the Transport Ministry, is keen to push for the faster construction of highways, while the Greens want transport resources to go into the accelerated expansion and construction of new rail lines. This falls in line with the FDP's refusal to impose speed limits on the highways, which some studies show would help reduce CO2 emissions.
Image: Jochen Tack/dpa/picture alliance
Pensions and healthcare
German society is aging. The pension system is ailing, and so are the health and above all the care sector. Health Minister Karl Lauterbach (SPD) wants more money for the reform plans, but Finance Minister Christian Lindner (FDP) says that not everything can be solved with money. He has plans to boost retirement funds through investment on the stock market.
Image: Matthias Bein/dpa/picture alliance
Fighting child obesity
One in six children in Germany is overweight. Now, Food and Agriculture Minister Cem Özdemir from the Green Party wants to ban daytime advertising for junk food. But the candy industry is fighting back, and the FDP is opposed to imposing restrictions.
Image: Oliver Berg/dpa/picture alliance
'Basic Child Security' plan
The SPD has pushed through the minimum wage hike, has pledged to subsidize affordable housing, and now it backs Family Minister Lisa Paus (Greens) in her bid to bundle child benefits from 2025 and scrap bureaucratic hurdles. Her 'Basic Child Security' package comes with a price tag of €12 billion ($12.8 billion), but FDP Finance Minister Christian Lindner is skeptical.
Image: Julian Stratenschulte/dpa/picture alliance
Immigration
The SPD and Greens want to facilitate skilled immigration and speed up the citizenship process. Justice Minister Marco Buschmann (FDP) is digging in its heels, he is skeptical about introducing dual citizenship and wants to emphasize the prevention of unregulated migration.
Image: Daniel Bockwoldt/dpa/picture alliance
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The infamous 'debt brake'
"We have to learn to make do with the financial framework available," the finance minister warns. That means setting priorities, "because not everything can be financed at the same time."
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Lindner is deliberately not naming a new deadline for the budget cornerstones and is thus aiming to build up pressure. Without a financial basis, the ministries cannot tackle any new legislative projects.
The FDP chairman is keen to implement one of his most important election promises: To reinstate the so-called "Schuldenbremse" (debt brake) enshrined in the constitution — a ceiling limiting fresh debt in any annual budget to 1% of GDP.
Germany is sitting on a mountain of debt after billions went into alleviating the impact of the COVID-19 pandemic, before last year's spending spree: €60 billion for climate protection, €100 billion to upgrade the Bundeswehr, €200 billion to compensate households and businesses for high energy costs.
And interest payments have increased significantly due to inflation and interest rate increases. The debts amount to around 2.5 trillion euros. This year, the finance minister will have to transfer around 40 billion euros in interest to creditors. That is ten times more than two years ago.
Budget disputes are not unusual. But this time the ideas are so far apart that a compromise is hard to imagine.
Meet Germany's government
Germany's first-ever three-way coalition government came into office in December 2021. These are the 17 individuals who are shaping federal politics.
Image: Bernd von Jutrczenka/dpa/picture alliance
Chancellor Olaf Scholz (SPD)
Scholz was the finance minister and vice-chancellor in the previous government and is the ninth chancellor and the fourth Social Democrat to hold the office. The former mayor of Hamburg handed his center-left party the surprise win in 2021, having campaigned on stability and pragmatism. Perceived as cautious and unemotional, he has sought to show leadership following Russia's invasion of Ukraine.
Image: Emmanuele Contini/Getty Images
Finance Minister Christian Lindner (FDP)
Media-savvy Christian Lindner has been the leader of the business-oriented, neoliberal Free Democratic Party (FDP) since 2013, inheriting a party that had just lost representation in parliament in the election. As Finance Minister during a time of multiple crises, he has been struggling to limit government spending while protecting the wealthy from tax hikes.
Economy and Climate Protection Minister Robert Habeck (Greens)
The vice chancellor is a member of the more moderate wing of his environmentalist party. He quickly outshone the chancellor with his open communication style, but then lost support in his attempt to implement a pragmatic wartime energy policy. The philosophy major and former author of children's books was previously Environment and Agriculture Minister in his home state of Schleswig-Holstein.
Image: Christian Spicker/IMAGO Images
Foreign Minister Annalena Baerbock
Germany's top diplomat emphasizes a "values-guided" and "feminist" foreign policy. Some months after Russia's war on Ukraine began, she has become the most popular member of the government. She has ruffled feathers by urging a tougher tone on China. Baerbock is only the second Green politician to take on the post, after Joschka Fischer in the late 1990s.
Possibly the biggest surprise in Scholz's new Cabinet, Faeser was elevated from SPD party leader in Hesse to one of Germany's biggest ministries, her first role at federal level. She has taken a tough line, especially on far-right extremism. She is the first woman to hold the office.
Image: Hannibal Hanschke/REUTERS
Health Minister Karl Lauterbach (SPD)
The virologist was a popular choice for Germans who enjoyed his outspoken appearances on TV talk shows, advocating a tough health policy throughout the COVID-19 pandemic. It has not all been smooth sailing for him since then. Lauterbach has vowed to tackle reforming Germany's overstretched hospital system.
Image: picture alliance/dpa
Justice Minister Marco Buschmann (FDP)
Christian Lindner is said to be the face of the FDP, but his childhood friend Marco Buschmann is said to be the brain. From humble beginnings, he excelled in his legal academic career. First elected to the Bundestag in 2009, his signature issue has been protecting individual freedoms. He is not one of the conservative hawks in his party but is cautious about immigration.
Food and Agriculture Minister Cem Özdemir (Greens)
The veteran Green Party politician joined the federal government after over a quarter-century in the German parliament. The first-ever German Cabinet minister with Turkish parents is a party moderate and outspoken critic of Turkish President Erdogan. He co-chaired the Green Party for close to a decade.
Image: Getty Images/AFP/J. MacDougall
Environment, Nature Conservation, Nuclear Safety and Consumer Protection Minister Steffi Lemke (Greens)
The ministry with the longest name has gone to the much-respected Steffi Lemke, among the handful who co-founded the Greens' East German branch in 1989. During her first spell in the Bundestag (1994-2002), she was also one of the few Green Party parliamentarians to initially oppose German participation in the Afghan war.
Image: Hendrik Schmidt/picture alliance/dpa
Transport and Digital Infrastructure Minister Volker Wissing (FDP)
FDP General Secretary Volker Wissing is the party's second most powerful politician after leader Christian Lindner. He spent five years as Rhineland-Palatinate's Economy Minister in a coalition with the SPD and the Greens. Although the hugely popular €9 ticket in the summer of 2022 was his brainchild, Wissing is known mainly for refusing to implement a speed limit on German motorways.
Image: Michael Kappeler/picture alliance/dpa
Construction and Housing Minister Klara Geywitz (SPD)
One of only two East Germans in the new Cabinet, Klara Geywitz heads a new ministry set up at the insistence of the SPD. Housing has become an acute issue in Germany, where urban areas are fast running out of affordable housing. Geywitz's ambitious announcement that 400,000 new units would be constructed each year seems to have proved unrealistic.
Image: Imago Images/M. Müller
Labor and Social Affairs Minister Hubertus Heil (SPD)
Heil held the same post in the previous government. During his first year in the new government, he led the overhaul of the social security scheme, and the increase in Germany's minimum wage to €12 ($13.60) an hour.
Economic Cooperation and Development Minister Svenja Schulze (SPD)
Angela Merkel's last environment minister became Scholz's first development minister. The outspoken opponent of nuclear power is a member of several environmental organizations. As the government is failing to phase-out fossil fuels as it scrambled to replace Russian gas imports in 2022, environment and climate policy has come under fire from activists.
Image: Birgit Maass/DW
Education and Research Minister Bettina Stark-Watzinger (FDP)
Stark-Watzinger was part of the party's negotiating team in coalition negotiations and is a specialist in finance and education policy. She has called for an "educational revolution" in Germany, ushering in a major digitalized overhaul of the current system. Earlier in her live, she lived in the UK for nine years.
Image: Michael Kappeler/picture alliance/dpa
Family Affairs, Senior Citizens, Women and Youth Minister Lisa Paus (Greens)
An economist by training, Paus has served as a Member of the German Bundestag for the city-state of Berlin since 2009. She has put the fight against human rights violations against children and women at the center of her ministry's work.
Image: Felix Zahn/photothek/picture alliance
Chief of Staff and Minister for Special Affairs Wolfgang Schmidt (SPD)
Scholz's right-hand man in the Cabinet is Wolfgang Schmidt, who worked with Scholz when he was mayor of Hamburg. Chief of staff with a special ministerial brief that gives the chancellorship extra weight in the Cabinet, Schmidt's role largely involves coordinating the ministerial work of the three parties.
Image: Kay Nietfeld/picture alliance/dpa
Federal Government Commissioner for Culture and the Media Claudia Roth (Greens)
Claudia Roth moved into the spotlight of German cultural policy. Within the Chancellor's office, she is also responsible for DW. Former party leader Roth is one of the most prominent faces of the Greens. Most recently, the former manager of the anarchist band Ton Steine Scherben was Vice President of the Bundestag.
Image: Kay Nietfeld/dpa/picture alliance
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Center-left vs. neoliberal
The Greens see taking on new debt mainly as investments into the future. Weeks ago, Economy Minister and Vice-Chancellor Robert Habeck wrote a letter to the finance minister on behalf of all Green ministers, telling him that his party was not prepared to sacrifice its political projects agreed upon by all three parties last year. The debt brake was by no means more important, he said.
There is not much left of the former harmony that the SPD, the Greens, and the FDP made a show of when they took office in December 2021.
The potential for conflict was there right from the start. The SPD and the Greens are left-leaning parties that care about social justice and ecology and advocate a strong state. If more money is needed, they see tax hikes as a good option.
In many respects, the neoliberal FDP propagates the opposite: As little regulation as possible, low taxes for companies and top earners, and as little social spending as possible.
The SPD and Greens are now calling for tax loopholes to be closed and subsidies to be eliminated in order to increase the state's revenues.
Tax breaks worth billions
"Subsidies that are harmful to the climate are a burden on the state budget and delay the transformation to a climate-neutral economy," Economics Professor Monika Schnitzer the chairwoman of the German Council of Economic Experts told several newspapers this month. This would mean scrapping tax rebates for kerosene, diesel fuel, and privately used company cars and VAT exemption for international flights, which would mean an additional 30 billion euros a year into state coffers.
Other economists suggest scrapping the tax breaks for the catering and hotel industry granted in the COVID-19 pandemic or they suggest raising retirement or reducing pensions.
The FDP does not want to cut subsidies that benefit its top-earning, car-loving voters. Following a beating in no less than five regional elections, the party is under a lot of pressure to please its voters.
But the FDP and the SPD also have every reason to avoid a break-up of the coalition government. Both parties have slumped in the polls, while the center-right opposition Christian Democrats (CDU) have seen their fortunes rise again. In several states, the CDU has teamed up with the Greens, who have seen solid support. New elections, pundits say, would likely cost the Social Democrats the chancellorship.
By June, the government must present its 2024 budget proposal to the Bundestag, the federal parliament. The final vote will not be taken until December 1, and experience shows that no budget leaves parliament in the form in which it was submitted by the government.
This article was originally written in German.
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