Germany’s deputy chancellor has made a major concession in talks on next year’s budget, amid fears that a simmering row over the spending plan could bring down the country’s fragile coalition government.
Robert Habeck said €7bn in government subsidies previously earmarked for a new Intel chip factory could now be used to plug a hole in the budget, in an olive branch to finance minister Christian Lindner.
Habeck made an impassioned appeal for unity on Monday, pointing to the possibility of a Donald Trump victory in the US presidential election, recent Russian advances in Ukraine and the darkening economic outlook.
“This is the worst possible time for the government to fail, considering what’s happening in Ukraine, the economic situation in Germany and the American elections,” he told reporters in Berlin.
Habeck’s concession came as Chancellor Olaf Scholz summoned him and Lindner to a series of crisis meetings aimed at saving the increasingly raucous coalition.
After Intel put the project on ice last month, Habeck had insisted the money for the factory be repurposed to support other investments in high-tech and climate protection. Lindner wanted the money used to close a €9bn hole in next year’s budget instead.
Relations between Scholz’s Social Democrats (SPD) and their coalition partners, Habeck’s Greens and Lindner’s liberal Free Democrats (FDP), have plummeted to new depths in recent weeks.
The three parties have become increasingly alarmed by Germany’s worsening economic outlook, with the IMF predicting growth of just 0.8 per cent next year. But they are entirely at odds over how to bring the country out of recession and kick-start a recovery.
In recent days, Germans have watched in bafflement as Lindner and Scholz held rival summits to discuss the country’s economic woes, while Lindner and Habeck produced competing reform blueprints with diametrically-opposed proposals.
Habeck on Monday insisted that the coalition partners pulled together to pass next year’s budget, which faces a fast-approaching November 14 deadline, as well as a package of 49 economic reforms adopted by the cabinet in July this year.
Scholz, too, appealed to his cabinet colleagues to overcome their differences. “Coalition government . . . is sometimes challenging,” he said on Monday. “But we know the tasks before us, the government was elected, is in office, and will accomplish these tasks.”
“It’s about pragmatism, not ideology,” he added.
Scholz’s spokesman Steffen Hebestreit said the chancellor had planned “several meetings” this week with Habeck and Lindner ahead of a crucial confab of coalition party leaders on Wednesday.
He insisted that the government would serve out its full term until elections scheduled for September — a scenario many politicians and commentators in Berlin now discount.
Carsten Brzeski, an analyst at ING, described German politics as a slow-motion train wreck. “The German government has just entered a new stage of slow-burning political crisis that could be the last step before the eventual collapse of the governing coalition,” he wrote in a note.
In the past few days, Habeck and Lindner have presented competing proposals for fixing Germany’s economy, which business leaders said had only deepened confusion about the direction of Scholz’s economic policy.
“What we’re seeing is a coalition that is completely dysfunctional, where there’s no agreement on any relevant issue,” said Thorsten Frei, a senior MP with the opposition CDU.
Habeck’s plan envisages a new debt-financed fund to stimulate investments — a proposal that the finance minister and his party have rejected.
Lindner’s rival plan, which was leaked last Friday, calls for tax cuts, an immediate moratorium on new regulation and an easing of Germany’s climate goals — ideas that are anathema to the FDP’s partners.
“I didn’t find a single proposal there that would be suitable for implementation,” said SPD co-leader Saskia Esken.
Lindner’s paper was reminiscent of a letter sent by the then-FDP economy minister Otto Graf Lambsdorff to the SPD chancellor Helmut Schmidt in 1982 advocating a series of economic reforms that went against the grain of SPD policy. The letter, often referred to as the “FDP divorce papers”, was swiftly followed by the collapse of the Schmidt government.
A spokesman for Lindner dismissed the comparison. “These are policy proposals that concern the budget and how to make the economy more dynamic,” he said. “They will now be openly debated in the coalition.”
Insiders say that if Lindner’s FDP leaves the coalition before November 14 and the budget is not adopted, an emergency procedure could be applied to allow for tax and spending in 2025.
Scholz could then try to soldier on as leader of a minority government until next year, or table a confidence vote in parliament, which, if he loses, would pave the way for early elections.