Germany, France struggle to secure budgets, risk uncertainty

German Chancellor Olaf Scholz and French Prime Minister Michel Barnier have similar problems at the moment: They would like to push through policies, but do not have enough funds from parliament to do so.

On Tuesday, France's lower house, the National Assembly, overwhelmingly rejected the first part of the budget for 2025, which involved revenues, by a large majority. While 392 lawmakers voted against it, 192 lawmakers from the government camp and from the far-right National Rally voted in favor. The vote came after a two-week debate in which the left-wing New Popular Front alliance, which makes up the largest political bloc in parliament, had reshaped the bill with amendments.

These included wealth tax on billionaires, a tax hike on "super-dividends" from large corporations, a tax on multinationals and higher taxes for digital companies, as well as a new tax for particularly loud motorcycles. Lawmakers had also scrapped the government's plans to impose higher taxes on electricity and gas heating, and not replaced it.

Germany faces possible budget freeze

The national budget is a government program expressed in figures. In these times of upheaval, these figures are lacking in both Berlin and Paris.

While Barnier can still hope for a regular budget in 2025 despite this defeat, the current minority government in Berlin cannot. At best, a supplementary budget for 2024 could, with opposition support, be passed before the dissolution of the Bundestag ahead of a snap election in February.

This is necessary because the German government is still short of money. It needs €3.7 billion (ca. $3.9 billion) to cover additional expenditure for the Citizen's Allowance, a state welfare benefit for basic income support, and more than €10 billion to promote renewable energies. If it doesn't find this money before the end of the year, it will have to respond with a budget freeze.

Uncertainty ahead of Trump's second presidency

When US President-elect Donald Trump returns to the White House on January 20, the Bundestag will probably have been dissolved. Almost five weeks later, on February 23, Germans will then elect a new parliament. Depending on the results, the formation of a government could drag on well into spring.

Germany will still have a chancellor and ministers after the dissolution of parliament by the president, but only in an executive capacity. During the transition phase, they will no longer be allowed to make fundamental or far-reaching decisions.

Only a new government will be able to negotiate with the new Trump administration or push ahead with decisions at the European Union level. Until then, Germany will have to wait and see.

But perhaps some will also be breathing a sigh of relief, as the coalition that has now failed has been considered a difficult partner in Brussels in recent years. In recent years, the coalition government repeatedly avoided making delicate decisions by abstaining, for example on the EU Supply Chain Act and on emissions regulations for trucks.

Barnier, Macron often at loggerheads

French President Emmanuel Macron nominated 73-year-old Barnier from the conservative Republican party as prime minister after he dissolved parliament and prompted a fresh parliamentary election earlier this year. Even together, Macron's centrist alliance and the Republicans do not have a majority in the National Assembly. They also don't have a binding government program, despite Barnier being in office for two months now.

The fact that the 2025 budget failed in the National Assembly could help the prime minister, because it is not the amended draft that will go to the upper house, the Senate, but the government's original draft.

The cuts to social benefits and public spending totaling around €60 billion for the 2025 budget are likely to have an easier time in the conservative Senate than in the National Assembly, where the necessity for austerity is more controversial. In June, the European Commission launched an excessive deficit procedure against France and reprimanded it for breaking budget rules.

Credit rating agencies are also keeping an eye on Paris. With a deficit of 6% of GDP this year and a mountain of debt amounting to 113% of GDP, France's budget situation is dramatic.

Will French government resort to extraordinary measures?

Shortly after Chancellor Scholz faces a vote of confidence in the Bundestag on December 16, the fate of his French counterpart could also be decided. According to the current timetable, the French budget for 2025 is due to be finalized by the joint mediation committee of both houses of parliament in the last week before Christmas. The National Assembly will then have to make the final decision.

It's quite possible that the French government, faced with the threat of defeat, will resort to Article 49.3 of the Constitution to pass the budget without a final vote. If the government relies on this special article, the opposition will have 24 hours to table a motion of censure. If this receives a majority, the government will have to resign and the draft budget will fail.

If this happens, the EU's two largest economies would be paralyzed and forced to resort to provisional budget management at the turn of a decisive year. In both countries, such budget management is limited to obligations that already exist or are legally prescribed and only intended to guarantee the basic functions of the state. Salaries, pensions and social benefits are covered but political projects remain on hold.

Scholz and Barnier will meet in the Berlin this coming week, when the latter makes his first official visit to the German capital as prime minister.

This article was originally written in German.