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BUDGET

Parliament approves record 2009 budget

After four days of tough debate, Germany’s lower house of parliament on Friday approved a record €290 billion budget for next year that was unanimously rejected by the country’s opposition parties.

Parliament approves record 2009 budget
Berlin, we have a budget. Photo: DPA

The government will spend 2.4 percent more in 2009 than in 2008 and take on €18.5 billion in new debt as the world’s export champion struggles with the repercussions of a global economic slowdown.

Finance Minister Peer Steinbrück praised the budget as being on-target while rejecting calls for tax cuts to help re-ignite the economy. One has to be careful that “the interest noose we’ve got around our neck doesn’t keep growing,” he said. He also noted that tax cuts would have no effect for half of the country’s 47 million households since they pay no income tax.

The budget, developed by politicians from the ruling Social Democrat (SPD) and Christian Democrat (CDU) coaliation, was met with strong words by the country’s opposition parties.

Otto Fricke, head of the Bundestag’s budget committee and a member of the liberal Free Democrats (FDP), said 2009’s budget broke several records. “Never during this legislative period has a budget been so far from reality as this budget. It is purely a campaign budget,” Fricke said, referring to next September’s general election. His party’s budget expert, Ulrike Flach, said that the budget would become a “blemish” on the struggling job market in the coming weeks.

The hard-line socialist Left party demanded the coalition government launch an economic stimulus package equivalent to 1 percent of the country’s $2.6 trillion gross domestic product. It accused the government of mouthing empty clichés while swiftly launching a €560 billion rescue package for banks.

Anna Lührmann from the Greens accused the government of “lacking in seriousness” by ignoring €20 billion in potential risks related to the budget. She also pushed to have debt limits added to the country’s constitution to ensure that liabilities are paid down during economic upturns.

CDU budget expert Steffen Kampeter rejected the criticism and said the government is using the new debt to offset a shortfall in tax income related to the economic slowdown. However, Kampeter acknowledged that a budget alone couldn’t offset concerns sparked by the slowing economy.

“You can’t buy trust,” he said.

Environment minister Sigmar Gabriel (SPD) will have 67.5% more cash to give out next year as new CO2-related income flows into his account while transport minister Wolfgang Tiefensee (SPD) will have the biggest true increase with a total €2.3 billion more allotted to his ministry for 2009.

ECONOMY

German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.

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With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.

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