Federal government: “Total work of art”: Traffic light coalition agrees on budget

After months of negotiations, the leaders of the traffic light coalition have agreed on a budget for 2025 and a package to stimulate the economy. Chancellor Olaf Scholz spoke of a “total work of art” that would be good for the stability of the country, but also for the traffic light government. The SPD and the Greens were unable to prevail against the FDP with their demand for a renewed suspension of the debt brake. Nevertheless, the agreement provides for investments of 57 billion euros. It is “by no means” an austerity budget, said Finance Minister Christian Lindner.

Parents will see an increase in child benefit of five euros at the beginning of next year. The defense budget is to grow from around 52 billion euros by around 1.2 billion euros – significantly less than demanded by Minister Boris Pistorius (SPD). The economic aid package with 49 measures is expected to lead to additional growth of more than half a percent next year – around 26 billion euros in additional economic output. Accelerated depreciation of investments and an improved research allowance are planned.

The plans are to be refined by July 17 and then approved by the cabinet. The Bundestag will discuss them for the first time in September. Scholz was confident that, unlike the previous budget, the agreement will not be talked down again straight away. “It is the firm intention of all those involved that things should not go exactly the same way as last time.”

Scholz after marathon negotiations: “Everything is great”

The agreement was preceded by extremely tough negotiations. Up until the very end, there was speculation that the coalition could collapse over the budget issue. Scholz met 23 times with Lindner (FDP) and Economics Minister Robert Habeck (Greens) to discuss the budget for a total of 80 hours. The last round lasted eleven hours and ended between 5 and 6 a.m. on Friday morning. Scholz then went straight to the SPD parliamentary group, which had already scheduled a special meeting on Wednesday to increase the pressure on the top trio of the traffic light coalition. When the Chancellor came out again after an hour and a half, he simply said: “Everything is great.”

His parliamentary group is not quite so euphoric. It had vehemently called for the debt brake to be suspended in order to have more scope for investment. The FDP opposed this, which continues to cause massive discontent in the SPD. SPD parliamentary group leader Rolf Mützenich could not hide this after the meeting of SPD MPs. “The fact that the Chancellor had to get involved so early with all the ministers (…) does not speak directly for the person who is directly responsible for this draft budget,” he said, lashing out at Lindner – rather unusual so soon after an agreement.

FDP is quite satisfied – SPD wants to examine closely

The budget agreement did not spark a storm of enthusiasm among the Greens either. The savings targets for the individual ministries will be looked at very closely, said parliamentary group leader Katharina Dröge. “In our view, the budget does not do justice to the situation in the country, particularly in the areas of internal and external security and humanitarian aid.” The FDP was the only party that was completely satisfied: the weakening of the debt brake was prevented, a growth package was on the way, everything was fine.

In any case, the traffic light leaders have come together once again, just under a year before the next federal election. “Losing your nerve, giving up, running away from responsibility – as Chancellor, I would have no understanding for that,” said Scholz in response to speculation about the end of the traffic light coalition. Germany must be an anchor of stability in Europe in this time of growing uncertainty.

The only thing that remains is the uncertainty that the consensus in the parliamentary process will break down again. The budget will not be finalized until the Bundestag passes it in the autumn. Mützenich made it very clear that there is still a long way to go before this point: “By the end of November or the beginning of December, the members of the German Bundestag, my parliamentary group, will evaluate the individual plans, the individual things and then take a close look at what needs to be changed, but what we can also support.” He is reserving the right to declare a budgetary emergency as an instrument.

Pistorius is one of the losers

Among the losers in the great struggle is Defense Minister Boris Pistorius (SPD) and the turning point proclaimed by the Chancellor himself. The special fund for the Bundeswehr, which has been set aside for this purpose with 100 billion euros, has already been earmarked, but is still counted towards the two percent target. “We are talking about an additional requirement of 6.5 to 7 billion euros for the coming year,” said Pistorius in New York in May, warning against an “arms freeze.” Now he has received 1.2 billion euros. A gap is opening up in terms of requirements because the operating costs of the armed forces are also rising. Some key projects, such as the purchase of battle tanks, air defense systems and frigates, have already been given the green light by the budget committee. Others – the planned purchase of submarines, cruise missiles or long-range rocket artillery – are becoming a distant prospect.

Scholz said nonetheless: “It’s about a strong defense, a strong Bundeswehr that offers protection against the aggressive tyrants of our time.” In 2028 – but there will be federal elections in between – the defense budget will grow to 80 billion euros.

Reforms to the Citizens’ Income

The traffic light coalition is placing a focus on work and social affairs in the budget, after the FDP had called for cuts in the social sector. In future, long-term unemployed people will receive a bonus if they accept a regular job. Conversely, monitoring to ensure that people accept work that is offered will be stricter.

Lindner announced “reforms to the citizen’s allowance”: Obligations to cooperate would be tightened. New reporting obligations would be introduced for people who are available to the job market at short notice: those affected would have to report to the Federal Employment Agency once a month in a way that minimizes red tape. Rules for which offered work is considered reasonable would be further developed. The waiting periods for protected assets would also be halved, said Lindner. Today, in the first year after the first citizen’s allowance application, increased allowances on assets and the suspension of checks on accommodation costs apply.