What’s Happening With Germany’s Budget Before the Snap Election

(Bloomberg) -- German Chancellor Olaf Scholz’s decision to fire Finance Minister Christian Lindner and trigger an early election has thrown a wrench into the government’s fiscal planning.

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Neither a supplementary budget for this year, including an additional €11.8 billion ($12.5 billion) in net new borrowing, nor the 2025 finance blueprint are likely to get parliamentary approval as Scholz’s government no longer has a majority in the Bundestag.

Here’s what that means for Germany — and Ukraine — in the coming weeks and months:

Immediate Repercussions

Joerg Kukies, Scholz’s new finance minister, has sought to calm fears about a spending freeze. Germany has a transparent process of temporary budget planning that has been used multiple times, including earlier this year after a court ruling upended the government’s finances.

Government initiatives that have already been launched will move forward and all legally binding expenditures will be executed. Among other things, this includes unemployment and child benefits, as well as student grants.

“No one needs to worry,” Kukies said Wednesday in his first statement to the lower house of parliament since taking office. “The federal government is paying its bills, and we are fully operational as far as the implementation of the 2024 budget is concerned.”

Budget Adjustment

Whether Scholz’s minority government can still get its budget adjustment for 2024 approved by lawmakers depends on talks between the two ruling parties, their former coalition partners — Lindner’s Free Democrats — and the opposition CDU/CSU alliance.

The extra new debt of €11.8 billion in the supplementary finance plan would take the total for this year to more than €50 billion, still in line with a constitutional borrowing limit.

“If the supplementary budget is rejected, we will work hard to cope with that,” Kukies told lawmakers. In that case, he would tap a reserve of about €8 billion to close the financing gap, he said.

Kukies can also redirect a €4 billion slice of an unused subsidy worth around €10 billion for a planned Intel Corp. facility in eastern Germany. The US chipmaker announced in September it was postponing the new factory.

Support for Ukraine

There is cross-party agreement to secure financing for aid earmarked for Ukraine to defend itself against Russia’s full-scale invasion.

Helge Braun, a CDU lawmaker who chairs the Bundestag budget committee, signaled Wednesday that Germany’s backing for the government in Kyiv is not at risk.

“Everything that is absolutely necessary can still be done,” Braun said in an interview with public broadcaster ZDF when asked about Ukraine aid.

Next Year’s Finances

In terms of the 2025 budget, hopes of passing it this year have effectively been dashed by the demise of Scholz’s three-party ruling alliance.

In an op-ed for the Frankfurter Allgemeine Zeitung newspaper published Wednesday, Braun suggested that, because of the timing of the election, the mechanism of “provisional budget management” may need to remain in place until the fall of next year.

He said the situation in Germany is in no way comparable to a government shutdown in the US, because all statutory services will be provided, legally binding financing commitments fulfilled and projects that have been started continued. That includes just over 80% of expenditure in the federal budget, Braun said.

--With assistance from Michael Nienaber.

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