(Bloomberg) -- Chancellor Olaf Scholz told fellow Social Democrats he’s confident a deal can be reached in “very difficult” budget negotiations while ruling out cuts to social spending, green subsidies or military support for Ukraine.
Speaking to delegates at a party congress in Berlin on Saturday, Scholz promised that his coalition government will push ahead with billions of euros in investments to modernize Europe’s largest economy and maintain international competitiveness, even after a court ruling last month that upended its budget planning.
“This is a very difficult task - especially when you can’t just do it the way you think is right, but also have to agree with others,” Scholz said. “But I would like to take this opportunity to convey the confidence that we will succeed. And that we will succeed in a way that is important for the future of our country.”
Pushing back against calls from Finance Minister Christian Lindner from the fiscally prudent Liberals, Scholz ruled out any major cuts to social benefits such as the newly reformed Buergergeld.
“There will be no dismantling of the welfare state,” Scholz shouted to roars of applause from the more than 600 party delegates.
The chancellor also vowed to keep up military support for Ukraine in its fight against Russia, and said Germany should be prepared to do more if others scaled back aid.
“We must stick together and stay on course,” Scholz said.
Scholz’s three-party alliance has been forced to overhaul its finances following the shock ruling in November by Germany’s highest court that restricted debt-financed spending via special funds outside the regular federal budget.
Lindner has identified a gap of €17 billion ($18.3 billion) in the regular budget for next year that needs to be plugged with measures like spending cuts and reductions in subsidies.
In addition, coalition officials are negotiating how to plug a hole of €60 billion euros in a special fund for climate and transformation projects such as the rollout of heat pumps or the expansion of electromobility and hydrogen infrastructure.
Scholz, Lindner and Economy Minister Robert Habeck of the Greens will resume budget negotiations on Sunday afternoon after talks on Friday evening yielded no breakthroughs.
Lindner has ruled out both tax increases and another suspension of restrictions on new borrowing next year. A self-styled fiscal hawk, Lindner already suffered a major defeat when he agreed to a supplementary budget for 2023, which suspended Germany’s debt brake for a fourth year in a row.
Senior officials from Scholz’s Social Democrats and Habeck’s Greens have called for another emergency suspension of the borrowing limit in 2024, saying it’s justified by Russia’s war on Ukraine and the government’s decision to provide Kyiv with more than €8 billion of additional military aid next year.
The aim is to finalize an accord on the 2024 budget in the coming days, which Scholz, Habeck and Lindner could then present jointly to the media before the chancellor flies to a three-day summit of European Union leaders in Brussels starting on Wednesday.
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