Germany’s SPD kicks off party convention with call for investments

Germany’s governing SPD party (S&D) has kicked off its party convention with calls for more public investments, including by circumventing and reforming the country’s ‘debt brake’.

While the German government still has not solved its budget crisis that followed a far-reaching court ruling by the county’s Constitutional Court, the Social Democratic Party (SPD) of Chancellor Olaf Scholz has kicked off its bi-annual party convention.

The party, which is often trapped between the positions of its coalition partners, the Greens and liberal FDP (Renew), has reiterated its willingness to increase public investments. This follows calls to cut welfare spending, international aid, and subsidy programmes by Finance Minister Christian Lindner (FDP).

“The judgement of the Federal Constitutional Court has given us a difficult task,” SPD co-leader Lars Klingbeil said at the convention on Friday.

“I don’t want us in Germany to find ourselves in a situation where we have to decide between supporting Ukraine, between the question of whether we guarantee social security for the citizens here in the country or whether we continue to enable climate investments,” he added, rejecting the calls to cut spending.

Last month, the German constitutional court strengthened the “debt brake” set in the German constitution since 2009, by forbidding the use of additional debt justified with an emergency in one year for spending in subsequent years.

Thereby, it has struck €60 billion off a “Climate and Transformation Fund”, which is not officially part of the federal budget and is meant to be used to fund several subsidy programmes for the transition towards climate neutrality and industrial policy.

“We know what it means when the state doesn’t invest. Every day we see the bridges that are no longer load-bearing, the trains that are no longer running, the schools that are leaking through the ceiling, a Bundeswehr that is not well-equipped,” Klingbeil said, blaming the predecessor government led by conservative CDU (EPP), of which SPD itself was a junior partner, for an “investment backlog”.

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With the German government scrambling to fill the budget gap left by a recent top court ruling, proposed solutions have diverged the three-party coalition, exposing old budgetary ideologies.

Circumvent the ‘debt brake’ also in 2024

Germany’s ‘debt brake’ limits new debt by the federal government to 0.35% of GDP a year, adjusted for the economic cycle, but can be suspended in times of outstanding “emergencies” that are beyond the control of the state.

After the ruling, however, it is clear that the additional spending justified with an emergency situation has to be directly linked to the cause of the emergency. For 2023, the government already had to retroactively declare an emergency, in order to put energy aid paid out this year, which was financed with another fund, on legally safe footing.

To allow for additional debt next year, Klingbeil promoted declaring an emergency for 2024, justified by the ongoing war in Ukraine.

“Instead of philosophising about whether we have a full emergency, half an emergency or no emergency at all, it might help to simply open your eyes,” Klingbeil said.

“Two hours’ flight from here, a nuclear power stands on the borders of Europe, forcing Ukraine into a war that violates international law,” he said, adding that “I am proud that we are standing by Ukraine’s side. And this support must continue.”

By using an emergency to justify additional debt to finance aid for Ukraine as well as increased military spending, the government could free up funds from the regular budget, which could then be used to replace parts of the “Climate and Transformation Fund”.

German cabinet adopts emergency 2023 budget, eyeing 'debt brake'

Germany’s three-party governing coalition adopted on Monday (27 November) a supplementary budget for 2023 which includes the proposal to declare an emergency situation suspending the ‘debt brake’ set in the constitution.

Reform of the ‘debt brake’

In his address to the convention, Klingbeil also questioned the debt brake more generally.

“China, the USA, South Korea, India and many others have recognised this and are investing hundreds of billions. And while others are firing up the turbo, we here in Germany are pulling the handbrake,” he said.

“The debt brake has become a risk to prosperity and that is why we must change it,” he added.

In a proposal for a motion to be adopted by the convention, the SPD leadership calls for a reform of the debt brake, including changing the rules for the cyclical adjustment of the 0.35% target, which would increase the additional debt allowed.

“A reform of the cyclical component makes the scope for debt dependent on investment in the productive capacity of the economy, such as education, and enables full employment,” the motion says.

Furthermore, rules to repay additional debt that was justified with an emergency should be less strict, the motion says, eying the coming years in which the COVID-related expenses would have to be paid back.

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[Edited by János Allenbach-Ammann/Nathalie Weatherald]

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