By Andreas Rinke and Christian Kraemer
BERLIN (Reuters) – A leader of German Chancellor Olaf Scholz’s Social Democrats on Monday batted away proposals by their smallest coalition partner for cuts in tax and spending, raising the stakes in a make-or-break week for the tottering three-party government.
Just as Germany seeks fresh economic impetus after the end of Russian gas and stiff competition from China eroded its business model, the row complicates attempts to plug holes of several billion euros to pass next year’s budget.
Bijan Djir-Sarai, general secretary of Finance Minister Christian Lindner’s business-friendly Free Democrats, had refused to rule out the coalition collapsing if FDP demands for spending cuts and a softening of climate regulations were not met.
But SPD co-leader Saskia Esken told reporters flatly: “I can’t see any proposals there that are suitable for implementation by a Social Democrat-led government.”
Scholz received Robert Habeck, economy minister and the Greens’ de facto leader, and FDP leader Lindner in his office for the first of a series of discussions before an official coalition meeting scheduled for Wednesday.
The three coalition parties disagree about the right response to the structural headwinds facing Europe’s largest economy, whose car industries are dealing with labour tensions and a growing competitive threat from Chinese rivals.
Scholz’s Social Democrats and the Greens, themselves at odds on a host of issues, agree that targeted government spending is needed to stimulate the economy, and reject the FDP’s supply-side focus.
Scholz declined to be drawn on the row, telling a news conference that the budget needed to be finalised. “It’s important to focus on jobs and the economy,” he said.
Lindner’s neoliberal party surprised his partners on Friday with a budget document that proposed tax and spending cuts and deregulation as the answer to Germany’s economic malaise.
“The economic policy we’ve had until now has failed,” Djir-Sarai told reporters. The FDP’s proposals would undermine core Greens ambitions, postponing by five years to 2050 the target date for making the economy climate neutral and abolishing a climate protection fund.
SURVIVAL OF GERMAN GOVERNMENT IN QUESTION
Asked whether the government could fall at Wednesday’s coalition meeting if it did not adopt the FDP’s prescription of lower tax and spending, Djir-Sarai said: “We will see.”
Before the leaders’ meeting, SPD general secretary Matthias Miersch had said he was optimistic that a deal would be reached, adding that the parties would have even more responsibility to ensure stability if Donald Trump won Tuesday’s U.S. presidential election.
Habeck wants an investment programme that would reassign 10 billion euros ($10.9 billion) freed up by U.S. semiconductor giant Intel (NASDAQ:)’s withdrawal from a government-backed chip factory project. Lindner would cut that budget allocation entirely.
Greens co-leader Omid Nouripour rejected any softening of climate goals but added: “We don’t want to break the coalition … We expect the others also to stick to their commitments.”
Underlining the loss of mutual trust, the three parties have each hosted separate, competing business forums in recent days.
“The German government has just entered a new stage of a slow-burning political crisis that could be the last step before the eventual collapse of the governing coalition,” wrote ING economic analyst Carsten Brzeski.
A collapse could leave Scholz heading a minority government and relying on ad hoc parliamentary majorities to govern, or trigger an early election – which surveys suggest would be disastrous for all three coalition parties.
The SPD and Greens are polling well below their scores in the 2021 election, while the FDP could be ejected from parliament altogether.
The conservatives, on 36%, currently lead in surveys, followed by the far-right Alternative for Germany on 16%. Parliament’s term is due to end next September. ($1 = 0.9181 euros)
(This story has been refiled to say ‘China’ in paragraph 2)
