Germany’s budget crisis grows – POLITICO

FOCUS ON GERMANY       

BUDGET CRISIS STRIKES AT HEART OF BERLIN’S GREEN AMBITIONS: What’s green but turns red when you push the wrong button? A frog in a blender, but also the mood in Germany’s governing coalition since the start of Berlin’s budget crisis, which has effectively left much of the coalition’s government program in a shambles.

Lots of frogs swallowed: The Green Party, in particular, has had to swallow many frogs (as the German expression goes, which roughly translates to “swallowing bitter pills”). Since the start of the coalition, the Greens have made tough concessions: prolonging nuclear power, allowing more arms exports, re-starting coal plants and scrapping plans to cut emissions from cars and residential heating.

For what? It was all worth it, the Green’s leadership argued, because Germany would soon embark on an all-out green transformation of its industry, financed by a massive green fund — which has now been killed.

Recap: The killer was a bombshell Constitutional Court ruling last month that said Germany’s use of special funds to finance energy and green subsidies violated the constitutional “debt brake,” which limits the federal deficit to 0.35 percent of GDP.

**A message from the Greens/EFA in the European Parliament: MEP Pär Holmgren: “2023 is set to be the hottest year on record, reaching 1.43 °C for the first ten months on average above pre-industrial temperatures. The Global Stocktake at COP28 is the first of its kind. We need to admit that we are far behind and that we can raise ambition.”**

Back to black: The budget crisis strikes at the heart of the Greens’ ambitions, as Hans von der Burchard reports in this key story out today.

Bad news for Europe: Unless it finds another way to fill the budget gap — most likely by declaring another emergency that would allow it to disregard the “debt brake” — the EU’s biggest economy risks falling behind on the green and digital transitions and missing EU-wide emission reduction targets, with repercussions for the entire Union.

As for the EU budget: German officials have also warned that the Constitutional Court ruling means Berlin will have no leeway to finance budget increases for the EU. We have more on those EU negotiations, below.

IT GETS WORSE: On Monday evening, the coalition received another blow as another institution — the country’s federal audit court — slammed Berlin’s plan to attempt to save this year’s national budget.

What now? The auditors warned that Germany’s supplementary budget for 2023 is “extremely problematic under constitutional law” because it retroactively invokes an emergency for a budget year that has almost expired.

Happening today: The court’s statement comes ahead of today’s key parliamentary budget committee hearing that will debate the crisis. While the audit court’s ruling is non-binding, its explicit mention of constitutional problems no doubt spells further trouble for the ruling coalition.

EU-HUNGARY SHOWDOWN       

LEAK: ANOTHER DAY, ANOTHER ORBÁN THREAT: Hungarian Prime Minister Viktor Orbán is doubling down on his threat to derail the end-of-year EU leaders’ summit, in a letter to Council President Charles Michel.

What it says: The letter, dated December 4 and obtained by your favorite newsletter for you here, urges Michel to remove the decision on opening accession negotiations with Ukraine from the agenda for the December summit.

Happening today: EU ambassadors meet today to discuss the draft conclusions for the summit — which still include the key line saying “the European Council decides to open accession negotiations with Ukraine and Moldova.” An EU official in Brussels involved in the talks said the conclusions remained the same because “26 out of the 27 countries still want to open accession negotiations.”

Principles or cash: Playbook spoke to officials and diplomats from key EU countries — who disagreed on what the Hungarian leader was trying to achieve with his blockade.

FRANTIC NEGOTIATIONS: Michel will cut short his trip to Beijing for the EU-China summit and return after a first day of meetings Thursday, an official told Playbook. “He will return to Brussels to continue his discussions with leaders on a way forward,” as the EU has no secure phone line from Beijing to speak to EU leaders without China listening in, the official said.

Macron invite to Orbán: French President Emmanuel Macron has invited Orbán to meet him in Paris at the end of this week to seek to strike a compromise, as Paris believes that the Hungarian leader can still be convinced to back Ukraine’s accession, an official in Paris told Playbook. Orbán was “driving up the bids” in a gamble to get more EU money, the official said. “It’s purely tactical … that’s why there’s a certain optimism that we can reach an agreement.”

Unimpressed: A diplomat from another EU country played down Orbán’s threat as political theatrics and sought to counter the impression that he was dictating the agenda for the other 26 countries, saying “another day, another letter from Budapest. So what’s new?”

More worried: But yet another senior diplomat from a third EU country said it was “increasingly difficult for Orbán to climb down” from his tree. The EU official in Brussels also said Orbán “really seems to mean it this time,” arguing the Hungarian leader had made clear that he would not budge on Ukraine’s accession even if he got more EU funds.

How do you fudge this one? The problem with Orbán’s position was that it made a typical EUCO compromise difficult, since the question was “binary,” the third diplomat said, adding: “Either we decide in December to open accession negotiations, or we don’t.”

Taking wins where you can get them: On the plus side, the senior diplomat pointed out that Orbán’s letter omitted two points that he had raised in his previous letter to Michel. “If you compare the two letters, you’ll notice that he no longer mentions opposition to security guarantees for Ukraine, and to the Russia sanctions.” People involved in the negotiations also said they believe Hungary will at least agree on shorter-term financing for Ukraine.

The other headache … is Austria, which is insisting that the EU must open accession talks with Bosnia and Herzegovina if it does so with Ukraine. Several officials and diplomats said that essentially meant Austrian opposition to Ukraine’s accession, given that Bosnia was not ready and the political leadership there is actually veering away from EU norms.

Return of the Austro-Hungarian Empire: “It’s not just Orbán. The Dual Monarchy is back. When it comes to enlargement, Austria is hiding behind Hungary, but no one dares to point that out,” a fourth EU diplomat said.

ORBÁN’S SPIN DOCTOR IN BRUSSELS: Meanwhile, Hungarian Secretary of State for Public Diplomacy and Relations Zoltán Kovács is in Brussels this week to prepare for Hungary’s Council presidency (in the second half of 2024) and took time with reporters to drive home the message that when it comes to the country’s threats, this time Budapest really means it, as my colleague Barbara Moens reports.

Not mincing words: “With a war raging and 20 percent of the country occupied … There are no working democratic institutions in the country … There is a purge going on in Ukraine … How on Earth can anyone suggest [that] Ukraine is ready for accession talks?” Kovács said.

Our vote is not for sale (this time): Kovács pushed back against the idea that Orbán is just using his leverage ahead of the European Council to unlock millions blocked because of rule-of-law issues. “Our position on Ukraine, our position on the MFF revision, and many other issues, would stand regardless of what is going on with the funds,” Kovács said. The idea that Hungary can be cajoled “into a political position, that we are going to give our consensus on the package or on other issues just because they promise money, it’s a twisted logic, nothing else.”

Is the Commission tweaking the evidence? The Commission’s assessment of Ukraine was not merit-based, Kovács said. “Not any of the conditions are met,” he said, adding that the Commission has “a political agenda and a wishful thinking — increasingly they are walking into declarations which intend to be self-fulfilling prophecy instead of reality based evaluation on the ground.”

EU BUDGET DEBATE       

EU COUNTRIES DIVIDED ON PROPOSAL TO USE RUSSIAN CASH: At a meeting of EU countries’ representatives on Monday, the Spanish presidency proposed using proceeds from frozen Russian assets to pay for €17 billion of EU grants to Ukraine until 2027 as part of the EU’s budget review — but many ambassadors reacted with skepticism to the proposal.

Budget top-up? Madrid estimates that profits from the Russian central bank reserves frozen in EU countries could generate €15-17 billion for Kyiv, according to the proposal obtained by POLITICO’s Gregorio Sorgi. 

Wishful thinking? Several EU capitals pointed out that the EU has not yet agreed on a plan to skim off the profits from Russia’s frozen funds. The Commission is due to present an initial proposal only next week, but some diplomats questioned whether it will generate the scale of revenues expected by Spain — and whether EU countries will agree on it in time.

Don’t count on that cash: “How do we know what amounts we talk about? And that money could be considered Ukrainian already,” fumed an EU diplomat referring to the proposal.

Fund without Hungary? Others pointed out that this idea was not needed as all member countries except Hungary agree on increasing funding to Kyiv — any Russian proceeds should come on top, not instead of EU aid for Ukraine. “It seems like a back door to try to use the extra funds for Ukraine for other spending, that coincidentally is on Spain’s own wishlist,” said a second diplomat. 

Still no deal in sight: EU diplomats are running out of time to square the circle on the 2024-2027 budget review ahead of the EU leaders’ summit on December 14-15.

The problem: While frugal countries oppose budget increases and have made proposals to re-allocate resources, as Playbook first reported, there’s no agreement in sight on which resources to re-allocate. Some capitals still insist that more cash is needed for migration, a new fund to boost EU competitiveness and interest payments.

Recap: Austria had proposed that instead of €18.9 billion in fresh funding to finance increased interest costs for the EU’s next generation fund, “the Commission could be empowered to deduct from future [next generation fund] disbursements an ‘interest fee’ … to cover the additional interest needs.”

Not so fast: But that idea has faced fierce opposition from countries that benefit most from that fund and would now receive less money if the interest costs were deducted, in particular Italy.

Cut the other funds, not mine: Spain’s compromise to cut some €15 billion from the Commission’s budget proposal faced opposition from countries who say they are in favor of saving money — but not on the budget lines that benefit them.

**Playbook kommt nach Berlin! POLITICO is bringing our award-winning policy journalism to the arena of German politics, in German. From the Bundestag and key institutions all the way to each Bundesländer, Berlin Playbook has got you covered for what’s to come in a momentous 2024 for European politics. Hier registrieren.** 

QATARGATE       

QATARGATE FILES, DAY 2: Seemingly everywhere investigators looked, as they tried to get to the truth of the European Parliament’s biggest corruption scandal, they found bundles of cash — under beds, in plastic bags, stuffed into suitcases, going missing on trains. There were so many banknotes circulating that at one point, €70,000 apparently got thrown in a dumpster. That is at least according to one of the alleged corruption suspects. Another suspect disputed the claim. 

Crypto queen, dethroned: Eva Kaili, who lost her job as vice president of the Parliament when the scandal broke a year ago, had been one of the strongest champions of cryptocurrencies in Brussels. It’s ironic that much of the evidence against the suspects came in the form of old fashioned bank notes. Read the story about how cash brought down Europe’s crypto queen from my colleagues Eddy Wax, Elisa Braun and Gian Volpicelli here.

IN OTHER NEWS       

SPANISH BID TO HEAD EIB INCHES CLOSER TO SUCCES: Nadia Calviño’s bid to head the European Investment Bank edged closer to success after last week’s push by Belgian Finance Minister Vincent Van Peteghem, who’s running the process to select the bank’s new boss. Belgium is confident that Calviño will pass, which “shows Belgium’s role as that of mediator, ensuring that there is a compromise,” a Belgian official said. The EIB job will be discussed on Friday by the EIB’s Board of Governors. 

Not so fast: Denmark “continues to support Margrethe Vestager for the position as new EIB president,” Danish Industry Minister Morten Bødskov said. “The Danish government has repeatedly pointed out that we want a quick clarification of the future EIB president. We understand that Margrethe Vestager has also called for that. Belgium is responsible for organizing the process, and we have called for a clarification now,” Bødskov said.

GREECE’S ‘NEW LEFT’: Eleven independent MPs, who broke away from Greece’s main opposition Syriza party in recent weeks, announced on Monday the formation of a new party, called “New Left.” Ex-Economy and Interior Minister Alexis Charitsis is the new party leader.  

Well, sort of: “We are not announcing a new political party, we are starting a new collective venture, we want to do politics differently,” said Charitsis. He said that the European election will be a showdown “in which we will join forces with those who want to participate in this common path, in order to record the consolidation of our new political space.”

NETANYAHU’S TRIAL RESUMES: Israeli Prime Minister Benjamin Netanyahu’s corruption trial resumed on Monday, after being suspended in the wake of Hamas’ October 7 attack. It comes as the U.N. warned of a “hellish scenario” developing in southern Gaza, where Israel has issued an evacuation order for the city of Khan Younis. More from the BBC.

WTF IS THE ‘GLOBAL STOCKTAKE’? The “Global Stocktake” is the term COP delegates keep throwing around at this year’s climate summit in Dubai. Often abbreviated to GST, it’s a nondescript name that conceals its vital role in international climate efforts. Zia Weise explains what it’s all about.

GETTING FOREST CARBON MARKETS WORKING: In a joint opinion article for POLITICO, British Minister for Energy and Net Zero Graham Stuart, Ghana’s Minister for Lands Samuel A. Jinapor and Guyana’s Minister for Natural Resources Vickram Bharrat spell out the problems with forest carbon markets — and how important it is to get those markets working. Read more here.

**POLITICO’s Global Playbook takes you behind the scenes at COP. As part of the major global events that shape international policy, our newsletter delivers daily reporting on green policy shifts taking place at COP28. Want to get them in your inbox? Sign up here.**

AGENDA       

— Justice and Home Affairs Council. Arrivals at 8:30 a.m. … doorstep by Spanish Interior Minister Fernando Grande-Marlaska at 9:10 a.m. … press conference 5:15 p.m. Full agenda. Watch.

— Transport, Telecommunications and Energy Council. Arrivals at 8:30 a.m. … press conference at 2 p.m. Full agenda. Watch.

— European Parliament President Roberta Metsola is in Catanzaro, Italy; attends a simulation of the 112 Emergency System together with the Foreign Affairs Minister Antonio Tajani, and the President of the Region of Calabria Roberto Occhiuto, followed by a joint press point at 9 a.m. … travels to Palermo, Sicily … delivers a keynote speech at the inauguration of the new academic year at the University of Palermo at 4:30 p.m. Watch.

— HERA 2023 Conference: Is the EU better prepared? … Commission President Ursula von der Leyen gives a welcome message; Health Commissioner Stella Kyriakides delivers the opening speech at 9:15 a.m. … Ukraine’s First Deputy Health Minister Serhii Dubrov delivers a speech at 2 p.m. … Commission Vice President Margaritis Schinas delivers closing remarks at 5:15 p.m. Full agenda. Watch.

— Commission Vice President Vĕra Jourová receives French Digital Minister Jean-Noël Barrot.

— Jobs and Social Rights Commissioner Nicolas Schmit is in Rome, Italy; meets Mayor of Rome Roberto Gualtieri.

— Transport Commissioner Adina Vălean meets Belgian Mobility Minister Georges Gilkinet.

— Financial Services Commissioner Mairead McGuinness is in Bulgaria; visits the border with Turkey with Bulgaria’s Finance Minister Assen Vassilev … meets with Ambassador of Ireland to Bulgaria Martina Feeney.

BRUSSELS CORNER       

SNCB STRIKE: A second 48-hour strike on the Belgian rail network, announced a few weeks ago, starts today at 10 p.m. and will last until Thursday. According to SNCB, three out of five IC trains should run. Most international trains should operate normally. There will be an alternative train service provided for each day of the strike.

MORE DISRUPTION: Rue Waelhem near North Station will undergo a renovation, leading to a two-week interruption of tram 55 at the Verboekhoven stop. Some bus stops at the station will also be moved, details here.

ABOLITION OF INDEXATION: The Federation of Enterprises in Belgium (FEB), an organization representing companies in Belgium’s three regions, has come up with a bold idea to abolish the automatic wage indexation. The FEB drafted a memorandum of ten priorities addressed to Belgium’s political parties ahead of the country’s 2024 election. The body says automatic wage indexation weakens the country’s competitiveness and should be abolished. Belgium is one of the few countries, alongside Luxembourg, that applies the wage indexation system. “There are bugs in our system,” said FEB’s Managing Director Pieter Timmermans. “Either you reboot it, or you don’t and the system crashes.”

Not a fan: “It’s a no,” Belgium’s Pensions and Social Integration Minister Karine Lalieux from the Socialist Party said in reaction to the proposal.

GENDER EMPLOYMENT GAP: Brussels has the largest gender employment gap in Belgium with a 10.2 percentage point difference between men and women, which is almost double the target set by the EU, which is aiming for a gap of 5.8 percent points by 2030. Flanders and Wallonia have made a progress and decreased the gap to 7.7 percentage points. The EU overall made progress from 12.2 percentage points in 2013 to 10.7 in 2022, but reaching the set target remains unlikely. The Brussels Times has more.

GUATEMALAN MURDERS TRIAL: A jury trial regarding the killing of three Belgian missionaries in Guatemala started on Monday in Leuven, more than 40 years on from the murders. The suspects — all on trial in absentia due to their old age — include Guatemala’s former interior minister, police chiefs and military figures.

EUROPEAN CINEMA NIGHT: The European Cinema Night is taking place until December 8, with free screenings across the continent. Map of screenings here.

SAINT NICHOLAS FESTIVITIES: Saint Nicholas, or Sinterklaas, will bring presents to well-behaved children in Belgium on Wednesday (and in some other European countries, including the Netherlands, today). Sinterklaas is traditionally accompanied by Zwart Piet (Black Pete), a character that controversially dresses up in blackface. Antiracism organizations both in Belgium and the Netherlands are fighting for the tradition to become more inclusive — protests took place two weeks ago in the Belgian city of Kortrijk.

Meanwhile in Ghent: The city council in Ghent has canceled a Christmas event where children would meet a female, Black version of Sinterklaas, called Queen Nikkolah, at the request of the mayor. “There is nothing wrong with Sinterklaas as we know him,” Mayor Mathias de Clercq said. “We shouldn’t try to turn him into something else.”

BIRTHDAYS: MEP Tiemo Wölken; Former MEP Ismail Ertug; Martin Selmayr, head of the European Commission representation in Vienna; British MP and Former U.K. Health Secretary Sajid Javid; Jamie McCourt, former U.S. ambassador to France and Monaco.

THANKS to Barbara Moens, Nektaria Stamouli, Gregorio Sorgi, Playbook reporter Ketrin Jochecová, editor Jack Lahart and producer Seb Starcevic.

**A message from the Greens/EFA in the European Parliament: MEP Bas Eickhout at COP28: “Dubai can only bend the climate curve if it delivers on climate finance, in particular loss and damage. Vulnerable countries will be facing damages amounting to hundreds of billions a year, for which they are not responsible. At last year’s conference, the conclusion was that this finance is needed, but we need a dedicated fund with contributions from developed countries. Both need to happen in Dubai: it would cement the trust that was long lost.” “We are living in a world of loss and damage. Our burning of fossil fuels has made the world less equal and more dangerous.”, says Dr Friederike Otto, Senior Lecturer in Climate Science at the Grantham Institute – Climate Change and the Environment, at the Imperial College London. “At COP28 it’s vital to remember that failing to phase out fossil fuels and investing in adaptation is violating essential human rights of people across the world.”**

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