Money Grab

Budget Row Brewing in Berlin

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Billions of euros will be needed to pay for the influx of refugees.
  • Why it matters

    Why it matters

    German lawmakers have made clear they’re not going to allow the government to spend its 2015 budget surplus on anything other than the refugee crisis.

  • Facts

    Facts

    • Thanks to buoyant economic growth, the government reached a budget surplus of €12.1 billion in 2015 — twice as much as had been expected just two months ago.
    • The government wants to use some of that money to boost defense spending and introduce purchase subsidies for electric cars.
    • Lawmakers have vowed to prevent extra spending despite the surplus, saying it must all be set aside to cover the costs of the refugee crisis.
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    Audio

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The 41 lawmakers on Germany’s budget committee are powerful people, at least nominally. They make a show of their strength every November when they make cabinet ministers wait outside their meeting room, often until late into the night, before calling them in to draw red lines through their spending plans.

It’s up to the lawmakers, not the finance minister, to approve every single cent of expenditure for the ministries. But they have had their wings clipped over the past year, and they’re angry about it.

First, they were all but forced to sign off on billions of euros of fresh guarantees for Greece that Chancellor Angela Merkel had pledged in European Union talks to stave off a Greek default and a possible disintegration of the euro zone. Now, they’ve got to make further billions available to pay for the influx of refugees, which totalled 1.1 million in 2015 alone and is continuing this year at the rate of some 4,000 people per day.

“Before we start talking about more money for the army, the structures must be created for the money to be spent efficiently.”

Eckhardt Rehberg, Finance expert with the CDU

Some members of parliament, even from Ms. Merkel’s conservative Christian Democratic Union, have had enough.

“We’re not going to go on clicking our heels,” fumed one lawmaker. Another member of the budget committee, Norbert Brackmann of the CDU, said: “We’re going to re-emphasize the role of parliament.”

Johannes Kahrs, a committee member for the center-left Social Democratic Party, which shares power with the conservatives in Ms. Merkel’s right-left coalition, said it was up to parliament to check and approve all monies being devoted to tackling the refugee crisis.

“We have an implementation deficit, and that’s why we need more personnel at the Federal Police, the THW (the Federal Agency for Technical Relief) and for the army,” Mr. Kahrs said.

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Mr. Schäuble will need to halt demands of some ministries for more money. Source: Reuters

 

No one can deny that Germany has enough money to master the crisis. Thanks to buoyant economic growth, the federal government reached a budget surplus of €12.1 billion, or $13.14 billion, in 2015. That’s twice as much as the budget committee had expected just two months ago. Parliament has decided that the surplus will flow into a reserve to cover the costs of caring for refugees.

The politicians are well aware that budget surpluses tend to tempt ministers to boost their spending, and have made clear that there won’t be a cent left for extra outlays.

But the government wants more money. Ms. Merkel reminded members of the defense committee on Wednesday that the United States keeps urging the Europeans to hike defense spending to reach the NATO goal of at least 2 percent of gross domestic product. To achieve that, Germany would need to boost defense spending by up to €25 billion.

No way, say lawmakers. “Before we start talking about more money for the army, the structures must be created for the money to be spent efficiently,” said Eckhardt Rehberg, a Christian Democrat parliamentarian finance expert.

But that’s not all. Ms. Merkel also wants more money to kickstart the virtually non-existent market for electric vehicles because her goal of reaching 1 million such cars on the roads by 2020 is looking more unrealistic by the day.

Last year, only 24,000 of the well over 60 million vehicles licensed in Germany were electric. Including hybrid vehicles, the figure was 127,000. The cars are there to buy, but they’re expensive and no one’s buying them.

Ms. Merkel wants to change that by announcing government assistance in early February, sources in the coalition said. Economics Minister Sigmar Gabriel, the vice chancellor and head of the SPD, wants to launch a purchase subsidy that would probably cost the government some €2 billion.

But lawmakers, true to their new-found rigor, told Finance Minister Mr. Schäuble at a meeting this week that they won’t make that money available.

“If that ends up meaning that the balanced budget can’t be held, then so be it.”

Sigmar Gabriel, Vice Chancellor and Economics Minister

Mr. Gabriel, meanwhile, is voicing doubts about the government’s goal of a balanced budget. Germany needs a residential construction program to accommodate refugees, he argued. “If that ends up meaning that the balanced budget can’t be held, then so be it,” he said.

The federal government faces further potential costs that could encumber its efforts to stay out of the red in coming years.

Preliminary calculations by Germany’s 16 regional states show that the redistribution of funds from richer states such as Bavaria and Baden-Württemberg to poorer ones like Berlin and Saxony reached a record of €9.6 billion last year. The figures, seen by Handelsblatt, mark an increase from the €7.8 billion total in 2014 and will strengthen calls for a reform of the system.

The states agreed plans for a reform last year, but the federal finance ministry would have to fund it, transferring €9.7 billion per year to poor states from 2019. They are pushing Mr. Schäuble to hurry up and say yes before regional elections in March in the three states of Baden-Württemberg, Rhineland-Palatinate and Saxony-Anhalt, which could produce new governments that may want to renegotiate the deal.

 

Handeslblatt editors Daniel Delhaes, Donata Riedel, Jan Hildebrand and Axel Schrinner collaborated on this article. To contact the authors: delhaes@handelsblatt.com, riedel@handelsblatt.com, hildebrand@handelsblatt.com and schrinner@handelsblatt.com

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