Germany’s finance ministry signaled to the country’s regional governments and municipalities that the days of generous emergency funding to offset the impact of the war in Ukraine and the energy crisis are over.
(Bloomberg) — Germany’s finance ministry signaled to the country’s regional governments and municipalities that the days of generous emergency funding to offset the impact of the war in Ukraine and the energy crisis are over.
Finance Minister Christian Lindner has insisted on the restoration of a constitutional brake on borrowing and is in the midst of tricky negotiations with his cabinet colleagues on allocating limited funds in next year’s finance plan. In its latest monthly report published Tuesday, Lindner’s ministry makes it clear that the government in Berlin is no longer willing or able to provide as much support for the 16 states and thousands of local authorities.
“All of this burden sharing is based on decisions taken in exceptional political and economic situations,” Luise Hoelscher, a deputy finance minister, said in the report.
“It’s clear that it cannot be the yardstick for coping with future challenges,” she added. “The financial situation of the federal government has in fact deteriorated considerably in recent years compared with the financial position of the states.”
Pandemic aid and support for businesses and consumers hit by the energy crisis contributed to a federal government deficit of €129.3 billion in 2022, while the states reported a surplus of €12.4 billion and the municipalities one of €8.8 billion in the same period, according to the report.
The ministry sees significant potential for savings. This year alone, the federal government is providing €53.7 billion ($57.6 billion) in financial relief to the 16 regions, including €10.9 billion for public transport even though that is within their remit.
“I would like to encourage the states to take an even stronger lead themselves when it comes to future tasks within their area of responsibility without waiting for the federal government to set the pace,” Hoelscher said. “Of course, the states must then also set priorities in their budgets.”
The Finance Ministry’s report also included an assessment of the economic outlook for Europe’s biggest economy. The ministry’s experts expect inflation to ease over the course of the year though the risks remain on the upside.
–With assistance from Michael Nienaber.
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