German government resolves latest deadlock but peace remains fragile

Germany’s Greens and the centre-right FDP party have settled their feud over the reform of child benefits, which has blocked the country’s crisis-ridden coalition government for more than a week.

Green Family Minister Lisa Paus had threatened to halt a growth stimulus package, a flagship project of the FDP, due to a lack of funding for child benefits, opening a new row between ministers.

A deal has now been struck with Finance Minister Christian Lindner, leader of the FDP, to instate a slimmed-down version of her original proposal, the ministers announced on Monday (28 August).

“Considering the economic situation, I am content with today’s result,” Paus told reporters in Berlin.

“Negotiations have been tough and it’s no secret that I consider it necessary to make an even bigger effort to fight child poverty,” she acknowledged.

The agreement amounts to a EUR400 million increase in funding for Paus’ legislation, as Lindner said he will make EUR2.4 billion available in the 2025 budget. Paus had initially demanded EUR12 billion, while Lindner planned for EUR2 billion.

The limited concessions are being framed as a victory for Lindner, who has been pushing an agenda of fiscal tightening. Pressure had been mounting on Paus, after Robert Habeck, the Green economy minister and vice-chancellor, expressed unhappiness at her block of the business stimulus plan.

The agreement clears the way for the adoption of Lindner’s stimulus package, which includes a series of tax breaks for companies, at a government retreat at Castle Meseberg on Tuesday and Wednesday.

Tense mood

However, the mood within the ruling coalition remains tense following a series of feuds before and after the summer break, which have severely damaged the government’s reputation.

At Monday’s press conference, the finance minister took a dig at Paus, saying that only she would know if the stimulus package could be passed now.

“Without you, the legislation would have passed already,” Lindner told Paus, who merely stated that she had “no objections”.

Another conflict is looming already as the three coalition parties are considering how to defend Germany’s position as a prime industrial location.

Habeck and the Greens, as well as their senior coalition partner, the SPD, have called for the government to subsidise electricity prices for energy-intensive industries.

Spat on electricity prices still to be resolved

Lindner has so far rejected this, instead pushing for broader reform of energy taxation.

However, the subject appears to be picking up momentum again ahead of the government’s retreat.

“I do not want to pre-empt the cabinet meeting in Meseberg,” Lindner said when asked about the matter on Monday.

Rolf M?tzenich, head of the SPD’s parliamentary group, which had circulated a concept paper for a subsidised electricity price of 5 cents per kilowatt hour for key industries, called on Lindner on Monday to abandon his opposition to the plan.

“One cannot always say no,” M?tzenich said, arguing that the FDP should have an interest “to keep competitive companies in Germany”.

However, M?tzenich also signalled openness to negotiations, saying his group’s proposal was only a “kick-off”.

“We have nothing against others taking part by showing us other ways,” M?tzenich told journalists, saying that a decision might be taken “within the next few weeks”.

[Edited by Benjamin Fox/Zoran Radosavljevic]