After the resounding rap from the Supreme Constitutional Court of Karlsruhe, which found it unconstitutional to divert funds from the Economic Stabilization Fund to other purposes and in another financial year, eyes are once again on the heads of the coalition government in Berlin. Chancellor Soltz (SPD), Vice-Chancellor Robert Habeck (Greens) and above all Finance Minister Christian Lindner (Liberals) will have to find ways to save almost 17 billion euros to close the 2024 budget by the end of the year. For days now the three politicians are looking for ways so that pre-decided relief measures for the economically weaker groups are not affected, and that 2024 is not declared a state of emergency(which would however allow the coalition government to cover the gap by borrowing).

Lindner has already stated categorically that he does not want to make such a decision, because the so-called debt brake, which almost eliminates the scope for new borrowing, is a constitutionally guaranteed authority and does not find what the extraordinary reason would be which would allow it to be circumvented, as was done due to the pandemic and war in Ukraine.

“No” Lindner to tax increases

With this data and as there are only a few days of government and legislative work left before the holidays, time frames are desperately tight. In today’s cabinet, the issue is not included among the topics for discussion, at least not included in writing on the agenda, although many believe that it will be discussed, due to the tight time limits. A solution should be found within 48 hours to follow the procedures and the revised budget plan of 2024 to be passed by the Federal Council in the last meeting of the year.

Both the Social Democrats and the Greens are pushing in this direction, arguing that Germans should not go into the Christmas holidays with a feeling of uncertainty, but that businesses also need clarity and certainty about the level of the funding and investment framework. Linder and his party argue that all prescribed procedures must be scrupulously followed without violating the “debt brake” in order to present a legally correct budget this time. But the critical question remains? Where will the 17 billion be saved from?

The finance minister is very modest in his statements, but there is a red line for him. That there are not going to be tax increases, as was heard recently from the ranks of the Social Democrats. “The tax burden is already high if there are signs of a recession next year, it would be foolish to burden growth with tax increases,” Lindner said in an attempt to end the debate there. And as if the situation were not already extremely difficult, on Tuesday 40 economists of the Scientific Committee of the Ministry of Economy presented a report entitled “Financing of public tasks: Challenges and recommendations for a sustainable fiscal policy”.

Towards debt reform?

The timing couldn’t have been better. Because economists conclude that brake debt should be reformed. This is a position that the vice-chancellor and minister of the economy, the Green Robert Hambeck, has been openly supporting for two weeks, as well as officials of the social democratic party. “We are faced with significant fiscal policy challenges and not just because of the Constitutional Court’s decision,” says Klaus Schmitt, professor of economic theory at the University of Munich. He is quick to clarify that the decision of the Karlsruhe judges, which plunged the government into a deep crisis, did not play a role in the report, which had already been drawn up before the decision was issued. Even if the report is not binding on the government, it is a scientific documentation worthy of attention for its proposals. To reform the constitutionally guaranteed term a decision of the Parliament with an enhanced majority is needed, which means that the votes of the Christian Union (CSU) are also needed, something that is practically impossible to happen. For Lindner, all that remains is a reallocation of resources with savings in social costs, which correspond to a total of 45% of the budget. An example is the new aid called “citizen’s allowance” (Bürgergeld).

Linder, like the Christian Democrats, argues that the projected increase in this benefit was calculated on the basis of higher inflation, which has since been reduced. So next year the amount of the allowance will have to be adjusted. “Technically this is now impossible, because the payment process has already started,” a representative of the Labor Organization told the Funke group newspapers. This is how the little time goes by and such it seems the 2024 budget will hardly be closed within the prescribed time limits.

It is assumed that there will be a cabinet decision for referral to the Budget committee with a “political agreement” in principle, as the newspaper Süddeutsche Zeitung calls it. The new year will begin with temporary budget management, meaning that any expenditure that cannot be justified for any reason will be reviewed by the finance ministry and approved by the cabinet. A procedure common after parliamentary elections, where the government only executes debts, but completely unusual for a sitting government with a declared parliamentary majority.