Vyacheslav Filippov — about the holes in the German budget and the political consequences
The leaders of the parties belonging to the ruling coalition of Germany (the Social Democratic Party of Germany - SPD, the Greens and the Free Democratic Party — FDP) were still able to reach a compromise on the draft federal budget for 2025 in mid—August after extremely difficult negotiations. The agreement took much longer than planned and was accompanied by public disputes between politicians, threats from some deputies from the ruling parties to stop supporting the government and even discussions about the inevitable collapse of the "Traffic Light" (as the coalition is called in Germany by the colors of its constituent parties).
A series of problems with budget planning in Germany has been going on for a long time. Let me remind you that Germany entered this year without a regular budget for 2024 due to disagreements between the ruling parties. It was approved only in early February, and before that, the temporary management of state finances was carried out. The German authorities found themselves in an extremely difficult situation after the Federal Constitutional Court (FCC) on November 15 last year declared illegal the decision of the Cabinet of Ministers to redistribute €60 billion intended from the 2021 supplementary budget to combat coronavirus to environmental and climate projects — to the Climate and Transformation Fund (Klima- und Transformationsfond, KTF). This provoked a serious budget crisis in Germany, as the authorities eventually had to find these funds from other sources to finance already agreed projects.
Due to the decision of the FCC and, in fact, the blocking of €60 billion, only a hole of €17 billion was formed in the regular state budget for 2024, which in turn affected the budget for 2025.
At the same time, the coalition is forced to comply with the requirement of the Basic Law on the so-called debt brake (the rule with a small margin of error prohibits spending more funds from the budget than it receives). First of all, Finance Minister Christian Lindner (FDP) insists on observing this point. "I want a budget within the framework of the constitution," he stressed earlier. However, it is already unclear how the government will be able to find funds for the implementation of a number of planned projects without increasing the national debt. According to Lindner, the federal budget deficit for 2025 is about €5 billion.
The coalition's rosy plans and harsh reality
When the SPD, the Greens and the FDP came to power in December 2021, many in Germany breathed a sigh of relief after the era of Angela Merkel and were waiting for "fresh air" and progress. There were assessments that three parties, unlike two (the so—called "Grand Coalition" - the CDU/CSU and SPD bloc), would be able to find the best solutions for the country in important areas of work on the basis of a compromise that would take into account the interests of wider segments of society and modernize the country. But reality has set the record straight.
Less than three months after the conclusion of the coalition agreement, Russia was forced to launch a special military operation in Ukraine. The entire agenda of the coalition has "gone down the drain," especially in light of its desire to provide Kiev with weapons "for as long as it takes." Energy prices rose, the German economy, which was dependent on Russian gas and oil supplies, began to stall, it also had to help, and additional billions were needed for military support to Ukraine, as well as for the Bundeswehr and measures in NATO. This is where the first conflicts in the ruling coalition began, when suddenly each of its participants began frantically offering their solutions to overcome the crisis, which took on a protracted character. Lowering the fuel tax and other relief measures to offload citizens and companies — discussions on these issues have intensified disagreements.
On November 15, 2023, another serious blow was dealt to the government's plans: as I have already mentioned, the Federal Constitutional Court declared illegal the decision to redistribute €60 billion.
Meanwhile, relations between the Social Democrats and the Greens have escalated to the limit due to aid to Ukraine. German Foreign Minister Annalena Berbock and other Green leaders, having essentially changed the pacifist principles of their party, began to insist on supplying Kiev with weapons, including tanks, constantly increasing pressure on Chancellor Olaf Scholz and the SPD, in which the foreign minister was increasingly called a "hawk". Despite the resistance of some Social Democrats, Germany consistently crossed new "red lines" in providing military assistance to Kiev. Now Germany is the second largest supplier of weapons to Ukraine after the United States. Berlin has allocated funds for this purpose and has committed to future expenditures in the amount of approximately €28 billion.
Savings at the expense of Ukraine?
On August 17, that is, a day after the announcement of a compromise on the draft state budget, the Frankfurter Allgemeine Sonntagszeitung newspaper en/mezhdunarodnaya-panorama/21625489" target="_blank" rel="nofollow">reported that Germany will have to limit military assistance to Ukraine in 2025, since new funds for these purposes are not provided in the current planning. The reason was allegedly austerity measures agreed by the Office of the Federal Chancellor of Germany and the Ministry of Finance. €4 billion will be allocated for military support of Ukraine next year, which is almost half as much as this year. And, for example, the planned aid in 2027 will decrease to less than one tenth of the current volume. According to the newspaper, on August 5, Lindner sent a letter to the heads of the Ministry of Defense and the Ministry of Foreign Affairs Boris Pistorius and Annalena Berbok, in which he informed about the impossibility of additional support for Kiev if "financing" of new commitments is not provided.
"The German government is depriving Ukraine of financial assistance", "The German government does not want to provide new assistance to Ukraine" — such headlines were taken up by the editorials of the country's leading media.
Back in mid-May, the German Defense Ministry announced the need to allocate an additional €3.87 billion for Ukraine this year. They supposedly had to go for spare parts (€1.3 billion), artillery shells (€600 million) and drones with armored vehicles (about €500 million). However, the Ministry of Finance and the Scholz department have not yet allowed their allocation. Meanwhile, the effects of the lockdown are already being felt. In particular, it was previously not possible to finance the supply of the IRIS-T air defense system in the amount of € 300 million. The manufacturer Diehl Defense offered it, but the money was not allocated, despite the desire of the Pistorius ministry. The ban led to an obvious conflict in the German government, with the Scholz department and the Ministry of Finance on the one hand and the Foreign Ministry and the Ministry of Defense on the other.
The Cabinet of Ministers rejects all accusations of plans to reduce support for Kiev. The chancellor's office assures that we are talking about €4 billion in 2025 from the budget alone, and additional assistance will allegedly come through other channels. The German authorities expect that Ukraine will receive a loan in the amount of €50 billion, the interest on which will be financed by income from frozen Russian assets. "With its help, Ukraine can purchase weapons in large quantities. She can rely on this," Scholz wrote on the social network X (previously Twitter).
This shaky instrument was agreed upon by the Group of Seven, but how it will work specifically is still unclear, primarily from a legal point of view. Even the ECB expressed their doubts. Moscow regards this simply as "theft."
How can I not remember the proverb: "To share the skin of an unkillable bear"? If the government's plans for revenues from frozen assets of the Russian Federation fail, then Berlin will face a huge problem and, obviously, a new hole in the budget, because it is determined to keep its promises to the authorities in Kiev. And this is taking into account the repeatedly stated desire of Germany to assume more obligations in NATO and strengthen its presence in the Asia-Pacific region.
Elections are coming, domestic political risks are growing
The problem for the ruling parties in the current situation also lies in the fact that elections to the landtags (land parliaments) of Saxony and Thuringia will be held next Sunday. The issue of arms supplies to Kiev during the election campaign there pushed regional issues and their pressing problems into the background. As you know, in the east of the country, in the lands of the former GDR, there is a "different" attitude towards Russia and the Western establishment. According to one recent poll, 76% of East Germans support peace talks with Russia, while 66% in the West.
Some politicians, in particular a member of the Bundestag (a group of the Left Party) Dietmar Bartsch even expressed the opinion that the Cabinet of Ministers decided to "deliberately" limit assistance to Ukraine in connection with the upcoming land elections. At the same time, the discussion about Kiev's support is more likely to benefit those opposed to arms supplies to Alternative for Germany and the Sarah Wagenknecht Union for Reason and Justice (BSW) party, which are strengthening their positions in Saxony and Thuringia, while the ruling SPD, Greens and FDP are clearly waiting there a complete fiasco.
It can be stated that the internal political risks for the coalition are growing, since the majority of Germans reject arms supplies and are ready to support those political forces that share their position. If it seems that the population of Germany, against the background of already high inflation and the decline of the German economy, will have to tighten their belts even tighter for the sake of Kiev and its adventures, in particular in the Kursk region, then the greater will be the internal political damage to the German government.
SPD co-chairman Lars Klingbeil promised to do everything to ensure that aid to Ukraine does not stop, despite budgetary difficulties. According to him, if the plan to use frozen Russian assets "does not work, then solutions must be found in the government [of Germany]." "Then solutions must be found, and we will find them," he claimed in an interview with Bild.
And here it is interesting, what price is the current German government willing to pay for the opportunity to continue this assistance to Kiev? After all, there is not much time left before the Bundestag elections (which will result in the formation of a new German government headed by a new chancellor), in fact, they are scheduled for September 28, 2025, and the economic situation in the country is not improving yet, rather the opposite.
