Berlin braces for budget cut battle – POLITICO #NewsGerman

Not doing so, he warned, could put Germany in “danger” of falling behind international competition.

Germany being in a recession also spells trouble for the eurozone and wider European Union, which are hugely dependent on the humming engine of the country’s vast industries.

Lindner and his FDP argue Germany has no other choice but to cut costs: He predicted a shortfall of €30 billion in tax income over the next few years as the economy suffers from the consequences of Russia’s war in Ukraine, including higher energy prices and lower investment rates. The latest news of an economic recession means the government has no reason to hope that tax income could increase again soon.

Another major problem is rising interest rates, which are eating into the remaining financial leeway: In comparison to 2021, when Germany had to pay just €3.9 billion in interest for its debt, these expenses are projected to reach €39.9 billion this year — a tenfold increase.

“For a very long time, we lived very well on artificially low interest rates,” Lindner said Thursday. “Now, in a very different economic environment and in a very different interest-rate environment, we have the task of returning to sound public finances and their long-term sustainability.”

Since forming the three-way government in 2021, Scholz has been able to resolve funding disputes by creating special funds that lie outside the regular budget, including a controversial €200 billion pot of cash to lower gas and energy prices for citizens and companies, as well as a €60 billion climate fund to help meet environmental goals. But these so-called shadow budgets have reached a hefty size, which the parties are loath to add to — hitting a whopping €360 billion last year, or 75 percent of this year’s regular budget of €476 billion (the special funds will be paid out over several years, though).