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BERLIN — The German government missed its self-imposed deadline Wednesday to reach a deal on the 2024 budget, fueling fears that the European Union’s largest economy is heading toward a period prolonged political and budgetary paralysis.
Time is running out for Chancellor Olaf Scholz’s government to agree on a spending plan for 2024 and obtain the required parliamentary approval by the end of the year. If no budget is in place by January, the government will have to resort to a temporary budget that maintains the freeze on new spending.
Coalition officials had previously aimed to agree on a draft budget for 2024 before a cabinet meeting on Wednesday morning. Economy Minister Robert Habeck even canceled his trip to the COP28 summit in Dubai to stay in Berlin for the ongoing negotiations. But on Tuesday evening, Scholz, Habeck and Finance Minister Christian Lindner – representing three different parties with different priorities – failed to make progress in the discussions.
Government spokesman Steffen Hebestreit told reporters on Wednesday that although no agreement had been reached, negotiations were continuing “very intensively.” He added a note of optimism: “I hope we can announce something very soon.”
Germany’s ruling coalition has been in disarray since an explosive ruling by the country’s highest court last month blew its finances by 60 billion euros. The decision also limited the government’s ability to withdraw money from special funds set up to circumvent the country’s constitutional debt brake, which strictly limits deficit spending.
German leaders now face the immediate task of closing a deficit estimated at 17 billion euros. in the 2024 budget. However, the three parties in Germany’s ruling coalition – the Greens, the center-left Social Democratic Party (SPD) and the fiscally conservative Free Democratic Party (FDP) – have very divergent political priorities.
The Greens want to maintain subsidies intended to accelerate the clean energy transition while the SPD wants to maintain social benefits. The FDP opposes a tax increase and a suspension of the debt brake for 2024 which would allow increased spending.
If the ruling coalition were forced to rely on a temporary budget, the government would continue to operate, with social benefits and pensions continuing to be paid. But this would prolong Germany’s political and budgetary impasse.
Economic consequences could also follow. The budgetary chaos, which is delaying the payment of several promised subsidies for Germany’s green transition, has destabilized German industry. Financing new microchip and battery factories depends on a set budget.
Meanwhile, political pressure is increasing. The highest levels of government fear that a continued failure to reach a budget deal could lead to snap elections next year. Given the falling popularity ratings of the ruling parties, this is a scenario their leaders will likely want to avoid.
Although the path forward remains unclear, government officials have sought to instil confidence.
“I certainly assume that the cabinet decision will be made this year,” Hebestreit said. However, he could not specify whether there would be enough time to pass a draft budget through Parliament before the end of the year.
Indeed, even if the ruling parties manage to reach an agreement in the coming days, it is far from certain that the Bundestag will approve it quickly. The conservative opposition could choose to file a complaint with the Constitutional Court for giving Parliament too much time to debate a draft budget.
Earlier this year, the conservative opposition took similar action when the government tried to rush through a controversial heat pump law.
Green co-leader Ricarda Lang said all parties must now demonstrate a willingness to compromise in order to reach an agreement and avoid a national crisis.
“We can achieve this together and stay united as a government,” she said.