Scholz defends maintaining aid to Ukraine despite budget difficulties

German Chancellor Olaf Scholz said Tuesday that maintaining aid to Ukraine in its war against Russia is of “existential importance” for Europe.

This support has “existential significance (…) for Ukraine, that is clear, but ultimately also for us in Europe,” Scholz said in a speech to German MPs in Berlin, in which he called for adequate budgetary funds . resources, especially for next year.

The chancellor is in parliament to answer questions from MPs about the budget crisis that is rocking the country and politically weakening the government.

After the United States, Germany is the country that sends the most aid to Ukraine, including arms supplies to fight the Russian invasion that began in 2022.

“It is clear that we can neither reduce our support for Ukraine” nor relax in efforts to resolve the “energy crisis” that followed Russia’s invasion of Ukraine in February 2022, he stressed, at a time when public opinion is increasingly being questioned . intervention in the conflict.

The Chancellor was speaking as his government faces a budget crisis that will force it to resort to more borrowing than expected to finance its spending and therefore allow the government deficit to fall.

This situation arose after the decision of the Constitutional Court, which on November 15 canceled the transfer of 60 billion euros of unused loans coming from the special fund related to the Covid-19 pandemic to the strategic green investment program. and industry support.

The German government was convicted of violating a constitutional rule known as the “debt brake,” which prohibits government deficits exceeding 0.35% of the nation’s gross domestic product (GDP) except in exceptional circumstances.

Berlin cited the existence of these circumstances in 2020, 2021 and 2022, but intended to comply with the maximum deficit limit this year.

Unable to achieve the goal, Scholz will propose this Tuesday to MPs to vote for an increase in the federal budget deficit by 45 billion euros, justifying it as the need to finance the “energy price brake”, citing an inflationary shield to reduce gas and electricity bills for families and businesses following price increases following the Russian war in Ukraine.

Europe’s largest economy, once a paragon of fiscal virtue and keen to teach the rest of Europe a lesson, is now struggling to balance its finances and is likely to allow its deficit to grow.

Economists say the spending cuts will only worsen the problems facing the German economy after Russia cut off cheap natural gas that supplied its factories, raising costs for companies and the cost of living for families who now pay much more for energy.

For years, Germany balanced its budget or even ran a small surplus as the economy ran largely on cheap Russian natural gas and growing exports of luxury cars and industrial equipment, backed by fast-growing China.

Analysts believe. However, the government has saved too much on investment in infrastructure, renewable energy and digitalization – gaps it is now trying to fill.

The fallout is expected to see Germany become the biggest worst-performing economy this year, contracting 0.5%, according to the International Monetary Fund.

Prospects for next year are slightly better. The industry is struggling with energy prices and skilled labor shortages, while Chinese automakers are challenging Germany’s Volkswagen, BMW and Mercedes-Benz with plans to expand sales across Europe.