Shortfalls could challenge Germany’s generosity – DW – 01/20/2024

Germans are the best tippers in Europe. They leave the most money most regularly, a YouGov survey reported last summer. In fact, even if the service at the restaurant or bar was terrible, almost one-fifth of Germans say they’ll still leave some extra cash.

The German government has a similar reputation for generosity. When it comes to the state funding things like social welfare, health, the arts and foreign aid, Germany often shows up near the top of the list.

Germany is often described as having one of the world’s most comprehensive social welfare systems. It regularly spends between 25% and 30% of national income, or gross domestic product (GDP), on things like pensions, health care, unemployment payments and other benefits. That puts it near the top of the list in Europe.

The country is also the world’s second-largest donor of what is known as official development assistance, or ODA: government aid for development and welfare in developing nations. Germany spent €32 billion on this in 2022, making it the second-largest in terms of funding in the world and fourth-largest donor for ODA as a percentage of national income.  

Increasing economic problems

All that may now be changing.

One of the reasons Germany has been able to spend so freely is because its export-driven economy has been strong. But over the past year, Germany has seen sluggish growth. The German economy shrank by 0.3% in 2023and was the only European economy not to grow last year. This year is not expected to be much better.

Recently, the UK publication The Economist once again described the country as “the sick man of Europe.”

Among other issues, analysts say, Germany suffers from too much bureaucracy, a lack of state investment in innovation and infrastructure and high energy prices. And the retirement of around 2 million baby boomers within the next five years means there are questions about who will pay for Germany’s ever-growing pension bill.

Another issue that some point to as increasingly problematic is Germany’s “debt brake.” The German constitution says the state may not borrow more than 0.35% of the country’s national income annually. Opinion on whether this is good for the country or not is divided. Some — including members of the Social Democrats (SPD) and the Green Party, who currently rule the country as part of a center-left coalition — want to either reform it or abolish it. They argue it stops Germany from making necessary investments in infrastructure and environmental protection. Others — including the government’s third coalition partner, the neoliberal Free Democrats (FDP), and conservative opposition parties — believe it must be adhered to so politicians stay fiscally responsible and public debt remains manageable.

In November, a constitutional court decision forced the German government to renegotiate its budget and left it with a €30 billion ($32.6 billion) budget shortfall for 2024.

German government rushes to slash budget after court ruling

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Germans getting stingy

Public sentiment also seems to have changed.

The idea of international aid has been falling out of favor with the German public, a 2023 working paper by the Overseas Development Institute noted. In 2018, a survey showed that 93% of locals thought it was important to “to help people in developing countries.” More recently though, a November 2023 survey that asked Germans where they thought necessary 2024 budget cuts should come from found that just over half believed savings should be made in development aid. A further 32% thought they should come out of social welfare.

In a 2022 column for the London School of Economics, experts from the German Economic Institute argued that any increase in anti-immigrant sentiment in a country often impacts feelings about how generous social welfare should be — that is, who can access benefits and for how long. A study published this week by the European Council on Foreign Relations found that for Germans, migration was their biggest concern. A much-publicized debate recently about whether migrants are drawn here because of the generosity of the country’s social welfare system seems to underscore those expert opinions. 

Impact of cuts

The far-right Alternative for Germany party, or AfD, buoyed by a rise in the polls, has presented a range of counterproposals for cuts.

Party co-leader Tino Chrupalla presented a policy paper in September reiterating the AfD’s policies and stressing that the party wants to reduce federal spending “in the areas of migration, climate and development policy.”

And there has been criticism even from within the government, with the vice president of the Free Democrats, Wolfgang Kubicki, suggesting that Germany was “wasting money” overseas. 

The 2024 draft budget was finally approved by the responsible parliamentary committee this week. It sees savings for all ministries apart from defense. While domestic social welfare payouts are safe, Finance Minister Christian Lindner announced a reform of social benefits for the long-term unemployed. The conservative parties, the Christian Democrat (CDU) and the Christian Social Union (CSU) have long been lobbying for a reduction.

And development aid will now suffer some of the biggest comparative decreases, with funding shrinking by almost €2 billion compared to 2023.

Germany should remain a leading contributor in development cooperation and international climate financing, the finance minister told newspapers from the Funke media group in December. “We can stay in first place. But perhaps the gap to second place can be reduced,” he said.

Cutting back on ODA funding will have far-reaching impact on vulnerable people, Justyna Szambelan, a senior policy advisor at German charity Welthungerhilfe, argued.

“If a major player like Germany deprioritizes its engagement in the United Nations Agenda 2030, this agenda might seem less of a priority for other countries, too,” she told DW. “This could lead to a general slump in funding for global issues across the board, like food security, health, education, water and sanitation,” she said. “Doubts may arise as to how binding the agreements within the UN are, and then trust in the multilateral system is eroded.”

Sonja Hövelmann, a researcher at the Centre for Humanitarian Action, told DW that “if they [Germany] cut their funding, then an important aspect of international leverage falls away. Along with that, international standing, international influence.”

Edited by Rina Goldenberg

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