in Germany, a budgetary crisis shakes all of Europe

Germany has long been presented as a model for rigorous budget management. But these days, Berlin is facing a crisis: impossible to complete the 2024 budget. And this worries all of Europe.

The subject will be on the table of European Finance Ministers, who are meeting this weekend in Brussels. Until now, Germany had never really made a name for itself on the management of its funds. He was rather the good student in the European class with dfinances squared away, no deficit, little debt, an image of an “ant” country, in contrast to the “cicada” countries of France, Italy and a few other spendthrifts. However, paradox of history, it is precisely this very rigorous management, very strict on the rules, which plunges Berlin into turmoil. Germany still cannot complete its budget for 2024, which begins in less than a month…

Berlin refuses to increase the debt

Like all European states, Germany must invest tens of billions of euros in the energy transition. To pay for these heavy expenses, Berlin hoped to be able to draw from the reserve of 60 billion euros from the recovery fund, paid by the European Union. However, this money was intended to restart the economy after the Covid crisis, and the German constitutional court vetoed it. The judges ruled that these funds could not be used for expenses other than those originally planned. Result: 17 billion euros are missing to complete the 2024 budget, in addition to several tens of other billions to be used to finance the energy transition. This transition, spread over the coming years, includes, among other things, the insulation of housing and the establishment of battery factories or renewable energy networks.

Borrow these billions of euros on the financial marketsthis is what France would have done, even if it meant increasing the debt a little more. But this debt reflex is anything but natural for the Germans. 15 years ago, they even imposed an ultra-strict rule on themselves, written in the Constitution: quasi-prohibition of any public deficit, except in emergency situations. Covid was considered an emergency situation, now we are out of it. Back to normality.

Fracture in government as stormy summit in Brussels approaches

This budgetary issue even fractures the German government, which is made up of three different tendencies. The Liberals on the one hand, very attached to a zero deficit, and on the other the Greens and the center-left, willingly more open to an increase in public spending supported by a possible tax increase. To remove this rule prohibiting debt, a vote of two-thirds of German MPs would be required, which is arithmetically impossible.

This German crisis is of great concern to European countries. German political leaders, focused on this issue, are abandoning European issues. However, in ten days, from December 13 to 15, a crucial summit is planned in Brussels, with the heads of state and government, in particular for decide whether or not to open negotiations for Ukraine’s accession to the European Union. This is not a small subject.

In addition, the 27 must debate possible extensions to the European budget, among other things to help Ukraine with a provision of an additional 50 billion euros, or to finance precisely the energy transition, or the protection of the borders of the European Union. But with Germany condemned to scraping the bottom line, it is impossible to imagine these extensions, although hoped for by many very concerned countries. This is why the German blockade could become a European blockage.