Germany’s Scholz vows to ‘invest heavily’ in
green transition despite budget crisis
Under intense fire from the conservative opposition,
the German chancellor provided no specifics on how the government would pay for
it.
BY HANS VON
DER BURCHARD
NOVEMBER
28, 2023 3:29 PM CET
BERLIN —
German Chancellor Olaf Scholz said Tuesday that his government would still
"invest heavily" in the modernization and green transition of his
country's economy, but provided no specifics on how his coalition would pay for
it amid a budget crisis that has sharply curbed the government's ability to
spend.
"We
must now ensure that we in Germany manage to transform our economy and remain
competitive as a strong industrialized country," the chancellor told
lawmakers. This means the government "must now invest heavily" and
"do everything we can to finally drive forward the energy transition in
Germany and Europe," he said.
The problem
for Scholz is that the conservative opposition is unlikely to go along with
proposals to loosen the legally-binding fiscal restraints German leaders have
imposed on themselves, leaving the tripartite ruling coalition almost no way
out of the budget crisis that doesn’t involve deep spending cuts.
Scholz’s
coalition has been in disarray since earlier this month, when the country's top
court ruled it unconstitutional for the government to repurpose €60 billion
left over from an emergency COVID-19 fund for climate projects. The ruling also
limited the government’s ability to draw from a variety of special funds
created to circumvent the country’s constitutionally enshrined debt brake,
which restricts the federal deficit to 0.35 percent of GDP except in times of
emergency.
The budget
crisis has forced the government to freeze new spending authorizations and to
put approval of next year’s budget on hold. It has also forced the government
to seek to retroactively declare an emergency and suspend the debt brake for
2023. Scholz’s government on Monday unveiled a supplementary 2023 budget, which
parliament must approve.
It remains
unclear how the ruling coalition will plug an estimated €20 billion gap in next
year's budget. The financing of several subsidies meant to accelerate the green
transition is in doubt due to the budget crunch. That includes subsidies to
help steel plants transition to hydrogen energy, as well investments in battery
plants and microchips.
Yet Scholz
said that his government would still finance such investments, without saying
how.
"Wherever
you look, be it the U.S., France, China or Japan, governments are busy
investing massively in the future," Scholz said. Germany must not lose
ground in this competition but "take a leading position," he added.
Scholz's
speech was frequently interrupted by heckling from the center-right and
far-right opposition parties.
"It's
simply embarrassing what we see and hear from you here," Friedrich Merz,
the leader of the center-right Christian Democratic Union (CDU), said in a
speech that followed Scholz's remarks. "You lack any idea of how this
country should develop in the coming years."
Merz said
his party will not back a reform of the debt brake to allow the government more
fiscal leeway as some, even within his own faction, have called for. "We
will not give you a hand to fall back into the old social democratic pattern of
ever-increasing national debt," he said in a comment directed at the
chancellor.
Merz has
also threatened to bring a legal challenge if Scholz's government attempts to
suspend the debt brake again in 2024 by declaring an emergency.
That
appears to leave the government few choices but to cut spending. At a time of
prolonged economic stagnation, such cuts could prove to be particularly
ill-timed.
In his
speech, the chancellor vowed that the budget crisis would not impact social
benefits, such as child benefits and pensions.
At the same
time, he said a subsidy to shield consumers and small businesses from high
energy prices — which was financed through a €200 billion special fund that
triggered controversy in other EU countries — would expire at the end of the
year. The subsidy was initially supposed to run through end of March, but
Scholz said that it is no longer critical since energy prices have fallen.
Scholz gave
no concrete indication of when his government would come up with a budget for
2024. If next year's budget isn't finalized before the end of this year,
Germany's government will need to start 2024 with an emergency budget that
would limit new spending plans.
Members of
Scholz's own government have suggested there will be no rapid agreement on next
year's budget.
"Considerable
efforts will still be required to finalize the 2024 federal budget,"
German Finance Minister Christian Lindner, leader of the Free Democrats, wrote
in a letter to the factions that comprise Germany's ruling coalition. "We
will have to have intensive discussions, which will not always be easy."
Scholz also
came under fire from the opposition for offering no direct apology to Germans
for the budgetary practices that led to the current crisis.
"At
least a word of regret, if not an apology, would have been appropriate,"
Merz said in parliament.
Ultimately,
it came down to Katharina Dröge, the Greens’ parliamentary group co-chair, to
issue a mea culpa for the ruling coalition.
“We
misjudged this collectively and we regret it,” she said. “That was not good for
anyone."
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