The German Government’s cabinet approved its new budget on July 5, which will see substantial spending cuts as the European Union’s biggest economy slides further into decline.
Put forward by German finance minister Christian Lindner, who is also head of the Liberal Free Democratic Party (FDP), the new financial package will see the country officially embrace austerity for the first time in 10 years.
The economic outlook for Germany has been poor over the past few months and it officially entered recession this spring. That was followed by studies revealing there were also record levels of investment leaving the country in 2022.
The only department that will not suffer cuts is defence, as Berlin intends to increase spending on its armed forces to keep up with its NATO obligations, which dictate that a member country must spend at least 2 per cent of its GPD on defence. Other pressures include new security concerns resulting from Russia’s war in Ukraine.
Overall, observers say, the budget tightening comes as little surprise. In the past few years Germany has been hit by economic shock after economic shock. First was the enormous cost of the Covid pandemic, its subsequent lockdowns and the huge sums spent on support for citizens and businesses alike.
Adding to the financial pain, Russia’s invasion of Ukraine shortly afterwards left Germany hit especially hard by the ensuing energy crisis, mainly due to its dependence on Russian oil and gas.
The knock-on effects that hammered household budgets led to a string of national strikes this year, as unions demanded that wages keep up with soaring domestic prices.
The steepest decline in German finances will be in borrowing. Under fiscal hawk Lindner, the country will only borrow €16.6 billion next year, less than half of the €45.6 billion it is borrowing this year.
That is largely down to constitutional rules that place limits on the amount the German state is permitted to borrow.
However, there are reports that extra funds outside of the official budget are being created, designed to remain in compliance with constitutional rules. These will mainly be used to help households with their energy bills, according to those close to the developments.
Still, it is family allowances that are set to receive the most brutal and, most likely, controversial reductions.
The income ceiling for couples to qualify for government-supported parental leave, for instance, is to be halved, dropping from a joint-income of €300,000 to €150,000 per couple. As many as 60,000 families will now no longer qualify for such funds when having a child, in what some say will only exacerbate Germany’s problems caused by its ageing population.
That has sparked recriminations within the ever-quarrelsome ruling coalition, with many politicians taking to Twitter to leak and counter-leak government documents.
One member of the FDP responded: “I find the coalition’s practice of tweeting internal posts embarrassing. But we can keep playing it like this.” He claimed the decision to cut family allowances was not made by Lindner, but by the minister of family affairs Lisa Paus, who is a member of the Green party.
Ich empfinde den Umgang in der Koalition, interne Post zu twittern, als peinlich. Aber wir können das gerne so weiter spielen ⬇️ Die Elterngeld-Idee kommt aus dem Hause Paus. Christian Lindner ist nicht schuld an der Verfassung. pic.twitter.com/WHjR265hTq
— Konstantin Kuhle (@KonstantinKuhle) July 4, 2023
