Coalition tensions will persist over German budget

Significance

This follows several weeks of acrimonious internal debates, after a previous budget draft from early July had to be scuppered due to concerns over its legality. The new deal provides another temporary reprieve, but fails to resolve the coalition’s underlying tensions on spending priorities, which will continue to drive internal tension. Parliament will begin discussing the budget towards the end of September.

Impacts

• There are serious doubts over how Berlin will be able to maintain current defence spending levels beyond 2027.
• Persistent conflict and uncertainty over fiscal policy will damage investor and consumer confidence.
• Victories for radical parties in September’s state elections would put pressure on mainstream parties to weaken their support for Ukraine.