Published : 1 month ago, on 05/11/2024

By Christian Kraemer

BERLIN (Reuters) -German Finance Minister Christian Lindner asked his partners on Tuesday to make their own proposals on economic policy after the budgetary package his party floated last week brought Chancellor Olaf Scholz’s coalition to the brink of collapse.

The loveless alliance was thrown into disarray when Lindner’s neo-liberal Free Democrats, the smallest coalition party, surprised left-wing partners with proposals to revive the economy with public spending cuts, lower taxes and less regulation.

Some of their plans, including a call to postpone by five years the target date for making Germany’s economy carbon-neutral, were anathema to the ecologist Greens, one of whose senior legislators called the proposals a “provocation”.

The (Greens) think my proposal is a provocation,” wrote Lindner on social media. “Counterproposals are welcome. But doing nothing is not an option.”

The FDP had earlier batted away an offer from Robert Habeck, economy minister and the Greens’ de facto leader, to hand back to the treasury 10 billion euros freed up by the collapse of a scheme to bring an Intel chip factory to Germany.

It was not the Greens’ first proposal: last month Habeck floated the idea of a fund to support companies investing in updating their infrastructure.

The turmoil comes as Europe’s largest economy could face a second successive year of contraction, with businesses fearing a loss of competitiveness and far-right and far-left parties gaining popularity.

Both Scholz’s Social Democrats and the Greens believe in a more interventionist economic policy. The FDP says Germany’s economic crisis requires a wholly new economic course rather than a reallocation of spending.

Lindner and Habeck spent two hours in crisis talks with Scholz in the chancellor’s office on Tuesday, but a budgetary compromise that could avert the collapse still looked elusive.

Scholz said he planned further talks between the parties. A formal coalition summit is scheduled for Wednesday evening, which could sound the death knell for the three-year-old government.

“It’s about a sense of responsibility for the country, not about ideology,” Scholz told reporters. “It can be done. We all need to work on this.”

Habeck said on Monday it was crucial, especially at a time of global instability and with the U.S. about to elect a new president, that Germany had a stable government and that he did not wish to break up the coalition.

“This coalition won’t ever be a love affair,” he added.

Germany’s biggest-selling newspaper Bild published photos of Lindner and Habeck arriving separately at Scholz’s riverside office shortly after dawn, and they left some two hours later.

Scholz’s government has been plagued by budgetary woes ever since the Constitutional Court last year struck down a 60-billion-euro accounting manoeuvre that had helped paper over gaps in the three parties’ approach to fiscal policy.

A coalition collapse would initially lead to a minority government led by Scholz, who could either try to govern until elections scheduled for next September, relying on ad hoc parliamentary majorities to pass laws, or seek an early vote.

(Additional reporting by Andreas Rinke, Sarah Marsh, Writing by Thomas Escritt; editing by Matthias Williams, Mark Heinrich and Bernadette Baum)