Germany to Slash Domestic Green Spending to Avoid Budget Crisis But Backs Billions More for Ukraine

Germany’s leftist coalition government struck a deal to avoid a budget crisis with massive cuts to its domestic green agenda projects, however, the government refused to reduce funding for the war in Ukraine.

The so-called traffic light coalition government, comprised of Chancellor Olaf Scholz’s Social Democrats (SPD), the Greens, and the pro-business neoliberal Free Democratic Party (FDP), have come to an agreement to solve the €17 billion ($18.3 billion) hole in the federal budget on Wednesday, German public broadcaster Deutsche Welle reports.

The budget was thrown into chaos last month after the country’s constitutional court ruled that the government’s attempt to reallocate €60 billion ($64.69 billion) of unused coronavirus-era debt to the climate fund violated the the terms of the “debt brake,” which prevents special projects to be used to circumvent the yearly public deficit cap restricts the annual public deficit to 0.35% of Germany’s total economic output.

After months of wrangling between the three parties, with the centrist FDP arguing for welfare cuts and the other two parties arguing in favour of raising taxes, the decision was made to target the green agenda to fill the budget hole. The climate and transformation fund that directs taxpayer cash towards the so-called green transformation of the economy will be slashed by €12 billion for 2024. Federal subsidies for solar power projects will also be slashed. The government also scrapped €3 billion in traditional energy subsidies.

While the government decided to cut domestic spending, it refused to touch the money it has committed to fund the foreign war in Ukraine, with Finance Minister Christian Lindner declaring that the German people “will continue to shoulder this responsibility”. Rather than cutting aid to Ukraine, Germany is set to double its financing to Kyiv to €8 billion next year.

Chancellor Olaf Scholz said that Berlin could even potentially provide more aid to Ukraine next year, if others, such as the United States, cut military aid, in which case Germany and the EU would “have to react” to the supposed threat of Russia invading other countries besides Ukraine.

“We have agreed to prioritise spending without putting the social security of our country or its transformation at risk. The Federal Ministry of Finance will now quickly implement these political compromises and provide the Bundestag with all appropriate formultions,” the Chancellor said on Wednesday

“It was hard, but constructive. In the end, we got a good, truly democratic compromise.”

Although the coalition government was able to come to an agreement, it is unclear if there will be enough time for the Bundestag parliament in Berlin to pass through the 2024 budget before the end of the year. If they fail to do so, it would mean that the government would have to operate on a limited basis starting in January until a budget is passed.

The provisional budget would continue to fund welfare benefits, pensions, and state employee salaries but other government expenditures such as manufacturing subsidies would be halted.

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