Germany faces budget crisis due to war in Ukraine
Germany's economy is in crisis after a court canceled billions of dollars in funding for clean energy projects and aid to companies and consumers facing high utility bills due to Russia's war in Ukraine
This was reported by the Associated Press.
On Tuesday, November 28, Chancellor Olaf Scholz plans to explain how he and his coalition intend to remedy the situation in his speech to parliament.
According to analysts, the government must urgently find ways to cut back on the almost completed spending plan for next year, which could further slow what is already the world’s worst-performing major economy.
Economists argue that implementing spending cuts will only compound the difficulties faced by Europe's largest economy, especially after Russia severed the supply of inexpensive natural gas that powered its factories. This has put additional pressure on businesses, raising the cost of living for households grappling with increased energy expenses.
Some of the disallowed spending has already been used this year. To comply with the ruling, the government is changing the 2023 budget by declaring an emergency, citing Russia’s cutoff of natural gas supplies and higher energy prices.
Unless another state of emergency is declared next year, the government will have to scramble to cover a €30 to €40 billion shortfall - plus €20 to €30 billion for 2025 - compared to previous plans, according to Holger Schmieding, chief economist at Berenberg Bank.
According to the International Monetary Fund, the German economy will show the worst performance among the world's major economies this year, shrinking by 0.5%.
- On November 27, it was announced that Germany would provide Ukrenergo with €300 million to repair and modernize the power grid.