German foreign minister warns Berlin austerity rules a risk to Ukraine and Europe

Budget row has ballooned into another existential standoff for Germany’s three government parties

German foreign minister Annalena Baerbock and her Green Party are leading the push to keep in place emergency provisions that enable Germany to spend heavily on defence and support for Ukraine. Photograph: Bernd Lauter/Getty Images

Germany’s foreign minister has warned that Berlin’s self-imposed fiscal rules pose a risk for the survival of an independent Ukraine and a peaceful Europe.

Annalena Baerbock’s stark warning comes as Berlin’s already strained ruling coalition struggles to agree budget cuts to plug a €25-billion hole in the country’s finances before a July 3rd deadline.

The liberal Free Democratic Party (FDP) finance minister Christian Lindner is pushing to reactivate Germany’s so-called fiscal brake, set aside during the pandemic. This limits new government borrowing to 0.35 per cent of gross domestic product – effectively zero given Germany’s negligible growth forecasts for this and next year.

Ms Baerbock’s Green Party are leading the push to keep in place emergency provisions to pause the debt brake. “What greater emergency situation can there be than this war in the heart of Europe?” she asked on Monday.

READ MORE

“It would be disastrous to have to say in a few years: we saved the debt brake but, as a result, lost Ukraine and the European peace order,” she told the Süddeutsche Zeitung daily.

Her remarks came hours after another inconclusive emergency meeting between Mr Lindner, Green economics minister Robert Habeck and Chancellor Olaf Scholz.

So far the German leader has backed Mr Lindner’s austerity demands, urging his coalition allies to “pull themselves together”, generate “less gun smoke” and find a political compromise.

But the worst-ever result for his Social Democratic Party (SPD) in the European elections has seen influential party leftists step up support for demands to ringfence social and climate spending.

After three strained years, Berlin’s budget row has ballooned into another existential standoff for the three government parties – in particular for Mr Lindner’s FDP.

Struggling in polls on the 5 per cent hurdle for parliamentary representation, Mr Lindner insists the debt brake is essential to secure sustainable public finances. Some 61 per cent of Germans back the debt brake, according to polls, and failing to reactivate it before the 2025 federal election risks could risk what remains of the pro-business FDP’s voter base.

Another challenge to Mr Lindner’s balanced budget ambition comes from the ongoing cost of the so-called Zeitenwende, a watershed on security and defence spending prompted by Russia’s invasion of Ukraine in February 2022.

Since then, Berlin has provided Ukraine with €6.6 billion worth of military assistance. On top of tanks, weapons and medical equipment, Germany has committed an additional €10 billion in the coming three years.

Also fully committed is the €100 billion special defence fund unveiled in 2022 to revive Germany’s own military capabilities. Plans to revive the debt brake have raised questions about how Berlin plans to simultaneously meet its Nato spending obligations from the regular budget.

Facing down budget-cut demands, defence minister Boris Pistorius is calling for an extra €6.5 billion next year. He has presented Mr Lindner with a legal analysis that the fiscal debt brake “has no priority over defence forces”.

Leading economic think tanks have warned that mandatory austerity imposed by Mr Lindner “is not only bad economics, it is also bad politics” that will push more voters towards far-right parties.

Berlin’s WZB social science centre warns in a new paper that “the democratic and economic stakes are simply too high to value fiscal stringency above all other goals”.

Political analysts see growing pressure on Mr Scholz between competing coalition partners and his own competing political priorities.

“Ms Baerbock is right, in extreme situations dogmas have to be challenged,” said Prof Klaus Schubert, political scientist at the University of Münster. “I ask myself, too, how long the chancellor can keep up the balancing act between ‘second-largest support for Ukraine’ and ‘peace chancellor’.”

Derek Scally

Derek Scally

Derek Scally is an Irish Times journalist based in Berlin