Germany is going through a period of great political uncertainty. The Traffic Light Coalition (as it is called tripartite who governs), led by the social democrat Olaf Scholz, is facing significant tensions which cast doubt on its ability to achieve the 2025 general budgets.
Precisely, the first frictions began with the negotiation of the public accounts for next year, since the government is made up of social democrats, liberals and greens. Three parties with very distant visions of the economy and different objectives.
On the other hand, the electoral results local elections in Saxony, Thuringia and Brandenburgwhich gave a clear blow to the far-right Alternative for Germany, caused the resignation of the leadership of the Greens, led by Omid Noripour and Richard Lang.
The journalist specializing in Budgets from the German economic magazine WirtschaftswocheChristian Ramthum, assured elEconomista.es that “the probability that the Teutonic accounts for next year will not take place is currently 50%”, said the specialist.
Germany is going through difficult economic times. Its industry has lost competitiveness due to the lack of public investment to adapt it to market demands.
Indeed, the Constitutional Court handed down a judgment which caused a hole of 60 billion in the German public accounts. The ambitious budget plan of Olaf Scholz and his government for 2024, with which they intended to transfer this money from Covid resources to a fund to fight climate change, was ultimately truncated.
The clause in the German Constitution prohibits any increase in the deficit above 0.35% of nominal GDP. This law can only be “circumvented” when providing assistance in specific emergency situations, such as the pandemic or the recent energy crisis.
“In a relationship, money is not everything, but money is important. Right now, there is a situation in which, how to make a budget with less money and a lot of desires? It’s the situation we find ourselves in now,” he said. Ramthum.
The spending ceiling set by the traffic light coalition for 2025 is 480 billion euros. To finance all this, They plan to issue 43.8 billion euros of new net debt. According to the document, this should comply with the provisions of the Basic Debt Brake Law, known as the Schuldenbremse.
Budget planning for the next financial year thus foresees a financial deficit in public coffers of almost 17 billion euros, which the Scholz government hopes to be able to limit thanks to economic growth and higher tax revenues than expected.
Experts are not sure that these accounts, with this debt, will pass the filter of Parliament. “I believe the budget will be constitutional,” says Ramthum.
The European locomotive finds itself in a complicated situation. Economic activity is slowing to the point that the country’s main economic institutes are forecasting a recession of 0.1% this year. For its part, the Bundesbank (central bank), although it only published its forecasts in December, assured in its monthly report for September that “it is possible” that Germany is in recession, although reiterating that, if so, she hopes she will. It will not be a “significant, widespread and lasting decline in economic performance”.
The OECD, for its part, is a little more optimistic in its forecasts. In their autumn economic review, published at the end of September, they forecast timid growth of 0.1% for Europe’s largest economy.
“Rising financing costs continued to put pressure on investment activity (…) In addition, German industry continues to feel the effects of weak external demand. Capacity utilization in industry is now significantly below average, which also depresses investment,” explained Bundesbank President Joachim Nagel.
Europe’s largest economy continues to receive bad news. At problems with Volkswagen and BMWadds to the recent announcement by Intel of the shutdown of the factory that they wanted to build in Magdeburg to manufacture electronic chips, with an investment of 30 billion euros, of which 10 billion would be the responsibility of the ‘State.
In Intel’s case, Ramthum says the good news is that the government now has that $10 billion to spend on something else. “There is now a debate about how to spend them,” the expert said.
The budget document is already being debated in the Bundestag and the final session is scheduled for the end of November, with the aim of having it approved before the end of the year.
