Weekly affairs in the German Federal Parliament (Bundestag)

The German government has embarked on a significant fiscal policy overhaul, with the Second Supplementary Budget Act 2021 serving as a stepping stone to more comprehensive reforms under Chancellor Merz's administration, starting in 2025.

One of the key developments is the reform of the national debt brake, which allows Germany to take on up to €500 billion in additional debt over the next 12 years for infrastructure and climate investments. This reform has paved the way for a special infrastructure and climate fund, the details of which will be determined through parliamentary approval and budget negotiations for 2025 and 2026.

The focus on climate protection has been heightened, as Germany is still struggling to meet its 2030 climate targets. Although there has been some progress in sectors like energy, shortfalls remain in transport and housing. The government is looking to these budget reforms to provide the necessary impetus for stronger future investments in clean technologies.

Economic growth and job security are also at the forefront of the new budget proposals. The government aims to stimulate economic growth and maintain jobs in sectors like infrastructure and energy transition. Balancing fiscal discipline after 2026 austerity warnings with the need for investments that create sustainable employment is a crucial challenge.

The Annual Economic Report 2022, to be decided by the German cabinet on Wednesday, will provide insights into the country's economic outlook for the coming year. The further economic development will be influenced by the course of the pandemic and the geopolitical situation.

The pandemic continues to impact sectors like service, retail, hotels, restaurants, and the cultural industry. However, Germany recorded economic growth of 2.7 percent in 2021, despite the impacts of the pandemic.

On the domestic front, the government has extended the mandate of the German Armed Forces to combat IS terrorism and stabilize Iraq, with an upper limit of 500 soldiers and the mandate set to expire on October 31, 2022.

In agriculture, the goal is to achieve 30 percent organic farming in Germany by 2030, and to examine how the direct payments of the EU's Common Agricultural Policy (CAP) can be adequately replaced by rewarding climate and environmental performance.

By the end of 2022, a binding animal husbandry labeling system will be introduced, covering transport and slaughtering. Additionally, by the end of 2023, the pesticide glyphosate will be removed from the market.

Looking ahead, the prognosis for the end of 2022/beginning of 2023 is cautiously optimistic. The government will continue to react with appropriate measures if the economic situation in individual areas requires it. The upcoming budget debates are crucial to balancing fiscal discipline after 2026 austerity warnings and ensuring investments create sustainable employment.

This represents a strategic pivot in German fiscal policy toward reconciling the debt brake with urgent climate, economic, and social investment needs. The aim is to catch up on investments in climate protection that were not made due to the pandemic, to further boost the economy, and to secure projects in the field of digitization.

[1] - Source for the debt brake reform and the special infrastructure and climate fund [3] - Source for the analysis of Germany's struggle to meet its 2030 climate targets [4] - Source for the challenges in balancing fiscal discipline and investments for sustainable employment

The German government's fiscal policy overhaul, with an emphasis on climate protection, politics, and policy-and-legislation, has seen the reform of the national debt brake to allow for additional debt for infrastructure and climate investments, and the creation of a special infrastructure and climate fund.
The upcoming budget debates for 2025 and 2026 will be crucial in determining the details of the special infrastructure and climate fund, as well as balancing fiscal discipline after 2026 austerity warnings with the need for investments that create sustainable employment, war-and-conflicts notwithstanding, in areas like agriculture and general-news like IS terrorism combat.