Europe

Olaf Scholz: ‘There will be no dismantling of the welfare state in Germany’

German leader attracts cheers at Social Democratic Party conference amid three-week budget deadlock

German chancellor Olaf Scholz addresses the SPD federal congress in Berlin on Saturday. Photograph: Michele Tantussi/Getty Images

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Derek Scally in Berlin
Sun Dec 10 2023 - 16:00

Chancellor Olaf Scholz has thrown down the gauntlet to his liberal minister for finance, insisting welfare spending will not be “dismantled” to plug a €17 billion hole in the federal budget.

The German leader attracted cheers at the annual conference of his Social Democratic Party (SPD) in advance of a further round of high-level talks on Sunday to break a three-week budget deadlock.

The Scholz administration was thrown into crisis last month after a court struck down a fund, containing repurposed pandemic loans, intended to finance key climate and infrastructure investment.

Despite several rounds of talks, the three-way “traffic light” alliance of SPD, Greens and liberal Free Democrats (FDP) has yet to agree whether how to balance its books: with additional borrowing, as the SPD and Greens want, or by the kind of cuts favoured by FDP minister for finance Christian Lindner.

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In a closely-watched party conference speech, never mentioning Mr Lindner by name, Mr Scholz conceded his “very difficult task, especially when you can’t just do it the way you think is right, but also have to agree with others”.

Aware Mr Lindner’s red pen is lingering over the welfare budget, more than 600 party delegates roared their approval when Mr Scholz defended his party’s welfare reforms and higher payments – key SPD election promises.

“This is not an unsolvable problem,” said Mr Scholz of his budget dilemma. “For me it is very clear in such a situation that there will be no dismantling of the welfare state in Germany.”

[ Germany’s leading economic policy sceptic sees influence spread to Brussels ]

Mr Scholz insisted, too, that Germany would honour its commitment to double its Ukraine military aid from €4 billion to €8 billion next year.

Days after US politicians blocked further spending for Kyiv, Mr Scholz said: “We have to stay stick together and stay the course.”

Though not party leader, the 65-year-old politician secured unanimous carte blanche from conference delegates to solve the budget crisis. But some criticised the chancellor’s 50-minute address for not presenting any concrete plans to solve a growing list of crises.

Two years after he took office, younger SPD members attacked their chancellor’s leadership style – from climate change to European policy – offered too little, too late – more defensive than offensive.

“Olaf, you once said that, ‘whoever orders leadership will get it’,” said Philipp Türmer, head of the SPD youth wing. “I am herewith placing an order and we waiting urgently for delivery.”

Just 20 per cent of Germans are satisfied with Mr Scholz as chancellor, the worst ever level of support in the ARD public television poll. A separate YouGov survey showed 77 per cent of Germans have no confidence in the chancellor’s leadership; among SPD voters that level of dissatisfaction is 60 per cent.

Asked which Bundestag MP they would like to have as chancellor, just 5 per cent named Mr Scholz.

With time running out to present a balanced budget for 2024, leading SPD figures want a further extension to a pause on the so-called debt brake.

This constitutional provision, limiting borrowing to 0.35 per cent of gross domestic product, was set aside in the pandemic to permit loans for emergency funding.

That contradicts the line by taken by Mr Lindner. After last month’s ruling he agreed to extend the debt brake pause for one more budget, on condition of an immediate return afterward to balanced books.

The minister for finance insists Germany will stand by financial commitments it has already made, including €10 billion in subsidies for a new Intel plant in eastern Germany.

“But beyond this individual case,” he said, “I am not convinced in the medium to long term that Germany can secure its competitiveness, prosperity and social security through subsidies.”

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