Germany cuts its spending by 445,000 million in the context of recession

In the last week of parliamentary sessions, before the summer recess, votes pile up in the Bundestag. Most notable among them is the 2014 budget, which will come out of the cabinet on Wednesday and move to the voting queue to be resolved until Friday. German Finance Minister Christian Lindner, I predicted a sharp decline in spending and new debt: the flawless budgets that are being discussed in times of recession. Lindner wants more money directed toward weapons, education, digitization and climate protection in exchange for savings in other areas. He is also aware that there is a “need to take action” to cut the budget by a total of 14.4 billion euros, and he is determined to save between 2025 and 2027. In 2024, according to his calculations, the German state’s spending will decrease significantly, with savings of 445.700 million euros compared to the previous budget.

Lindner argues that after the pandemic and the energy crisis, which caused many additional expenses, it is time to return to “financial normality”. The debt brake provided in the German Basic Law must come into force again and new indebtedness is estimated at around €16,600 million in 2024 to comply with it.

Enforcing this budgetary discipline was not entirely easy for him. Originally, ministries raised much higher spending requests. In particular, the ministers responsible for social spending, from the Social Democratic and Green parties, which are part of the “Semaphore Coalition”, criticized Lindner for crippling funds and elements. One of the most contentious was the €2,000m funding for the planned Child Safety Essentials plan. In 2025 it will be well below the 12,000 million euros requested by Family Minister Lisa Pauss (Green Party).

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Lindner also made a good snippet to Minister of Agriculture Cem Özdemir (the Greens), demanding the abolition of agricultural diesel subsidies and in return offering him the possibility of a gradual expansion of tax incentives planned for agribusiness in the coming years. He will soon pass a “tax reform bill” that should include tax incentives for companies that invest in climate technologies. Lindner, who is similarly forward on the research tax subsidies offered by the Grand Alliance, said Lindner, too, wants to expand.

The head of the FDP believes the incentives are necessary because he sees Germany as a workplace threatened. German technology is still highly valued. But there are doubts about why we have put more and more obstacles in recent years,” he explains. “Many things have to be fundamentally changed compared to the way politics have been done in the past 10 years.” If it were up to him, the German economy would also be immediately exempt from the Solidarity Tax, which transfers wealth to the eastern regions of the former GDR. “This would be the quickest way to close the disadvantages of location in the tax area,” he argues, but he lacks a majority. In the traffic lights alliance to remove it.

Lindner’s decision to return German budgets to the path of discipline is not affected by the fact that the German economy contracted in the first two quarters of the year, which means entering a technical recession. Although the services sector is holding the rate for now, the industry has been hit hard and new orders indicate further weak demand. German exports are falling and domestic consumption is not picking up due to rising inflation. But Lindner is guided by the forecasts of the German central bank (Bundesbank), which expects a downward frame of only -0.3% in 2023 and a relatively quick recovery in activity. The Bundesbank estimates GDP to increase by 1.2% in 2024 and 2025, while predicting that we will close this year with inflation at 6%, but see it drop to around 2%, which the ECB sees as a context for price stability. .

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With these malicious actions, Minister Lindner is defending a long course of austerity in front of his partners at the traffic light. “It will continue to be difficult,” he declared in an interview with Salmon newspaper Handelsblatt, determined to identify holes in the financial plan he intends to follow at face value until 2027 “so that no one can overlook the scale of the challenge.” »For any project in the future, it must That the traffic light works first is a margin of maneuver,” he warned his cabinet colleagues, “if you want to finance something new, you have to say before that where the money should come from, clearly. Indicates what is no longer necessary for financing ». Lindner also cautions that these budgets are only the beginning of the consolidation process he is considering.

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