German coalition needs ‘painful’ compromises as it misses first 2025 budget deadline

2 months ago 10

Germany’s three-party government coalition did not reach an internal deal on the 2025 draft budget by Wednesday (3 July), the previously agreed deadline, as differences over potential spending cuts proved challenging to bridge.

Chancellor Olaf Scholz’s governing coalition has been in negotiations for weeks. It needs to cut spending by around €25 billion compared to the previous year while also accounting for—partly unexpected—additional spending needs and wishes by the different ministries.

Responding to questions in the German parliament on Wednesday, Scholz downplayed the conflict, committing to “adopt the budget this month in the Federal Cabinet”.

“The Bundestag typically discusses the budget after the summer recess and then deliberates on it until the end of the year. There will be no disruption to this schedule,” he said.

The postponement of the adoption of the draft budget was expected, as earlier this week government officials and coalition parties signaled they would not meet the 3 July deadline.

Speaking to journalists on Wednesday, Economy Minister and Vice-Chancellor Robert Habeck (Greens) called the negotiations “difficult”, adding that “it means that everyone has to go to their pain thresholds and sometimes even a metre beyond.”

“Sometimes you only go beyond the pain threshold when you have the finishing line in sight, and that’s what we have now,” he said.

While the two centre-left parties in the coalition – the social democratic SPD (S&D) of Scholz and Habeck’s Greens – had called for a reform of the country’s strict deficit limit, known as ‘debt brake’ to allow for more spending, this was ruled out by Finance Minister Christian Lindner, who heads the third coalition party, liberal FDP (Renew).

Equally, Lindner pushed back against proposals by the German industry to circumvent the debt brake through a new special fund for infrastructure investments, similar to the €100 billion fund created to increase military spending after the Russian invasion of Ukraine.

Lindner’s insistence was affirmed by FDP Secretary-General Bijan Djir-Sarai on Monday, who called for “sound budgetary and financial policy”.

Alongside the draft budget, the government also wants to adopt a “dynamisation package” to boost the country’s slugging economic growth. Measures would include extending tax incentives and incentives for older workers to keep working beyond retirement.