Germany is once again facing economic hardship. According to German Economy Minister Robert Habeck, the country’s economy could shrink by 0.5% due to a budget crisis.
A stumbling block for the country's budget may be difficulties in financing the flagship climate and transformation fund amid a spending freeze valid until the end of 2023. The loss of €60 billion in funds initially earmarked for green projects could shave off 0.5% of German economic output in 2024, the economy minister emphasized.
Moreover, this effect could linger throughout 2025 and 2026. In this case, the government will have to protect "the very foundation of Germany's economy" and take urgent measures to master this challenging situation and keep Europe's growth locomotive afloat.
Earlier, the German government approved a budget for its climate and transformation fund, which would provide €211 billion to develop hydrogen and semiconductor technologies, rehabilitate buildings, and decarbonize industry. In addition, the money was supposed to be spent on modernizing railway and highway infrastructures as well as laying fiber-optic lines. The authorities planned to use €58 billion from the climate fund and €54 billion from the state budget for these purposes in 2024.
However, the budget document will have to be reviewed. A freeze on future spending commitments is expected to affect almost the entire federal budget and various departments of the country. The government's measures to cap energy and electricity prices are also under threat. Subsidies will be paid only in exceptional cases and upon approval from Germany's finance ministry. According to German Finance Minister Christian Lindner, price subsidies for electricity and gas will expire at the end of 2023 and not be extended into next year.