This is how the German government wants to save itself from the crisis: the European Commission releases blocked billions for Hungary

60 billion euros were lost as a result of the Federal Constitutional Court’s ruling on the climate and transformation fund. After weeks of uncertainty, the traffic light coalition has now reached agreement on how it wants to close the financing gap: part of the missing billions must be saved through cuts in the 2024 budget. “We don’t like to do that, but it is necessary,” said Chancellor Olaf Scholz (SPD). The most important results at a glance:

The debt brake must be maintained for the time being

For the time being, there should be no emergency decision, as allowed by the debt brake, to finance climate protection projects or aid to Ukraine. Despite the budget gap, the debt rule should largely come back into effect next year, with one exception. This concerns the consequences of the flood disaster in the Ahr valley, for which an amount of 2.7 billion euros has been allocated next year. According to the Basic Law, borrowing limits can be increased to cope with natural disasters. The traffic light coalition now wants to investigate whether it is possible to relax the debt brake for the Ahrtal aid and also seek support from the opposition. Alternatively, financing from the federal budget is also an option, as ZEIT ONLINE has learned from circles in the Federal Ministry of Finance.

The war in Ukraine could also cause the debt brakes to falter next year. Next year, the government wants to spend 8 billion euros from the regular budget, mainly on military aid to Ukraine. However, if the situation in Ukraine worsens because the situation at the front deteriorates or because other countries reduce their financial support, the government will want to take on even more debt if necessary. In this case, the government reserves the right to declare a state of emergency. Compliance with the debt brake is therefore far from certain.

The climate fund is shrinking

According to Federal Minister of Economic Affairs Robert Habeck (Greens), the central pillars of the Climate and Transformation Fund (KTF), from which the government had to cut 60 billion euros, must be preserved. These included, for example, developing the hydrogen economy, decarbonizing industry and promoting the heat transition. However, fewer resources have been reserved for the KTF in the future. Some projects are canceled or finish earlier than planned. According to the information, 12.7 billion euros will be cut from the fund next year. A total of 45 billion euros should be lost by 2027. At the same time, more money must flow to the KTF and subsidies from the core budget must also be possible. The total volume is expected to reach 160 billion euros in 2027.

Companies that have already been approved for an “early start of measures” for their project can breathe a sigh of relief, as ZEIT ONLINE has learned from circles at the Federal Ministry of Economic Affairs. Many transformation projects, such as the switch to green steel or the construction of a hydrogen pipeline network, should be financed through the KTF. Although the companies are still waiting for their final financing decision, they have already managed to secure land, plan facilities and submit building applications with an “early start to measures”. Apparently you can move on now.

The CO₂ price should rise faster

To increase the KTF’s revenues, the CO₂ price would have to rise faster than previously planned. The price is currently 30 euros per tonne. Next year that will increase to 45 euros. Originally 40 euros was planned. The increase is remarkable because the FDP fundamentally rejects tax increases. However, with the increase in the price of CO₂, the burden on citizens and companies increases, because gas and fuels, among other things, become more expensive. The ADAC estimates that the price of a liter of petrol will rise by 1.4 cents.

Vice-chairman of the CDU faction, Jens Spahn, accuses the traffic light coalition of putting too much pressure on people. “The fact that the traffic light is now raising the CO₂ price again without providing relief through the promised climate money is a breach of word,” he says. Economists, on the other hand, welcome the government’s efforts to improve revenues and consider an even higher CO₂ price appropriate. “We could be more ambitious when it comes to the CO₂ price,” says economist Veronika Grimm. Then the payment of climate money could have been financed, as actually planned by the traffic light coalition.

The purchase bonuses for electric cars expire earlier

The environmental bonus, a financing program for electric cars, will be cancelled. When purchasing a new electric car, half is covered by the manufacturer and the other half by the federal government. The intention was actually that next year the bonus for the purchase of a new car with an electric drive would decrease from the current maximum of 6,750 to 4,500 euros. Moreover, the bonus would have expired anyway at the end of 2024. Now it will be eliminated earlier than planned. The federal government has not provided a specific end date. However, the announcement could mean that in 2024 only applications that have already been approved will be paid out.

Less financing than planned for the renovation of the heating system

Private individuals, companies and installation companies must prepare for reduced financing. According to information from ZEIT ONLINE from the Federal Ministry of Economic Affairs, this largely concerns subsidies for the conversion of heating systems, as decided at the construction summit. The speed bonus available if you replace the heating in 2028 should be increased from 20 to 25 percent next year. This increase must be eliminated. The maximum financing percentage must also be increased from 70 to 75 percent. That too is now off the table. The savings will likely slow down the already slow heating transition.

There will be cuts in the financing of solar energy

Solar energy companies and private customers currently benefit from a number of benefits: two KfW financing programs subsidize solar energy systems and the combination package consisting of a PV system, wall box and electric car. VAT is also reduced for smaller systems and no income tax has to be paid on self-produced solar energy. Minister of Economic Affairs Habeck left that open. Knowing full well that Germany’s solar industry is already suffering from strong competition with Asia, Habeck said: “That hurts me.”

Even as the federal government tries to reaffirm its desire for a transition to heating, renewable energy and transformation, the obvious austerity measures will also affect future technologies – and that causes criticism. “It will not work without strong investments, which is clearly visible in the desolate condition of the railway,” the director of the employer-oriented Institute for German Economics in Cologne and his colleague Tobias Hentze wrote in a statement. “Investments would be essential, especially now.” The demand of many economists: not to save in the short term, but to secure the necessary future investments in the long term.

Also cuts in benefits for citizens

Cuts to the social sector have been a recurring point of contention between the traffic light parties in recent weeks. Now it is clear: there will be cuts. According to sources in the Federal Ministry of Finance, sanctions on citizens’ benefits should be tightened for those who refuse to work even if they could work. The citizen money bonus that job seekers who follow further training receive will be cancelled. Job placement for Ukrainians should also be more efficient to save money.

In addition, housing benefits should be reduced and the federal subsidy for statutory pension insurance reduced. Despite the cuts, Finance Minister Lindner emphasizes: “We have not had any reduction in social standards. But more accuracy and therefore a saving of 1.5 billion euros.” However, whether the measures can actually save that much depends on many other factors, such as how the labor market develops.

Subsidies that are harmful to the climate will be abolished

The new budget should also eliminate climate-damaging subsidies and thus save money. According to the federal government’s plans, this includes the plastic tax, which Germany currently transfers annually from the federal budget to Brussels. In 2021, the EU required all member states to pay a levy for plastic that was not recycled. In the future, these costs will be paid by the distributors, i.e. manufacturers or supermarkets – through a plastic tax, as ZEIT ONLINE has learned from circles in the Federal Ministry of Economic Affairs. This causes companies to incur additional costs that they can pass on to customers.

In addition, kerosene will be taxed in national aviation in the future. So far, there is no tax on aviation fuel in Germany, just like in all other EU countries. These costs may also be reflected in ticket prices.

According to Finance Minister Lindner, a total of three billion euros could be saved by reducing climate-damaging subsidies. And that, in turn, should help to stick to another recently decided project of the same financial size: the reduction of electricity taxes in the manufacturing sector to the European minimum rate of 0.05 cents per kilowatt hour. The federal government agreed to this in November to ease the burden on the sector.

The railway should finance itself more independently

Rail needs billions of dollars in investment, and travelers are currently noticing this every day. The railway should receive 12.5 billion euros from the KTF in the coming years, of which 4 billion next year.

There were therefore no cuts in the railway budget. The railway’s equity must be increased to finance investments. It is still unclear how the federal government plans to finance this capital increase without the KTF. Lindner said, for example, privatization proceeds from unnecessary federal investments should be used in part to strengthen the railroad. He did not provide further details.

DB has been planning for some time to sell its logistics subsidiary Schenker, which provides transport by road, air and water. The costs could potentially amount to 15 billion euros. The bidding process has not yet started; according to Handelsblatt, the federal government is still discussing the criteria for a possible buyer. Is an investor from an authoritarian state, such as an Arab sovereign wealth fund, an option?

Federal Transport Minister Volker Wissing (FDP) recently urged people to hurry. “We can also use this money to invest in the railway infrastructure, for example,” Wissing told ARD. However, there is also criticism of the proposed sale, as Schenker has brought profits to the railways in recent years. And according to information from Handelsblatt, DB should use about half of the proceeds to pay down debt. The gap created by the KTF ruling would probably not be filled by a sale by Schenker alone.

This article first appeared on Zeit Online. Watson may have changed the headings and subheadings. Click here for the original.