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28.11.2023
THEME: ECONOMY

Navigating the Storm: Germany's Budget Crisis and its Impact on Europe's Largest Economy

Europe's largest economy, Germany, is currently in the throes of a financial crisis that threatens to destabilize its economic stability and growth trajectory. This crisis has been triggered by a recent ruling by Germany's top court blocking the reallocation of approximately €60 billion of unused Covid-19 pandemic debt to climate and transformation projects. This decision has resulted in a spending freeze on new expenditures, particularly those related to green initiatives, throwing the country's budget into disarray.

The root of this financial predicament is Germany's debt brake policy, established in 2009. This policy caps the country's structural budget deficit at roughly 0.35% of its gross domestic product (GDP). While the debt brake can be temporarily lifted during times of exceptional need, its inflexibility has been criticized for hindering Germany's ability to borrow enough to invest in key industries when most needed. This constraint could potentially dampen Germany's competitiveness in the global market, especially considering its sluggish growth and weak demand.

The recent court ruling not only disrupts Germany's progress towards its 2030 emissions and 2045 net-zero targets but also poses a risk to the stability of the current three-way coalition government. The ruling has delayed the 2024 budget announcement plans of Chancellor Olaf Scholz’s coalition government, with the effects possibly extending to financial plans until 2027 due to the €60 billion cut.

Germany's economy is showing signs of strain, as evidenced by the contraction of GDP on 24 November and the shrinking manufacturing sector. The Purchasing Managers’ Index (PMI) for Germany stood at 47.1 in November, marking the fifth consecutive month of contraction. The construction sector, which contributes 6% to Germany’s GDP, is also facing challenges with falling orders and declining affordability.

The Organisation for Economic Co-operation and Development (OECD) raised a red flag on 23 November, warning that Germany's budget crisis could hinder the European economy in the coming years. The German Council of Economic Experts forecasts a mild recovery in 2024, but future economic conditions remain contingent on changes in central bank policies or global economic sentiment.

In response to the court ruling, the German government has temporarily suspended the "debt brake" for this year's budget. This suspension, coupled with the cancellation of 60 billion euros of fiscal spending, is expected to have a long-term negative impact on the economy due to austerity measures, prolonged uncertainty, and potentially reduced public investment.

To regain control of the budget, the government is considering measures such as increased taxes on carbon and inheritance, and cuts to subsidies. These measures, however, could affect growth next year and create uncertainty for businesses regarding public aid for the energy crisis and climate transition, potentially leading to lower private investment.

Despite these challenges, Germany remains committed to green initiatives and industry support. The coalition is exploring solutions to preserve as many spending pledges as possible and make them legally compliant. These include drafting a supplementary budget for 2023 and temporarily suspending Germany's self-imposed debt brake before reinstating it next year.

In essence, Germany's current budget crisis is a multifaceted issue that demands careful navigation. The decisions made now will have far-reaching impacts on the country's future economic stability and growth trajectory. As Germany steers through this financial storm, the world watches with cautious optimism, hopeful that Europe's largest economy can weather the storm and emerge stronger on the other side.

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27.11.2023
THEME: WORLD

Sudan's Escalating Crisis: The Rapid Support Forces' Power Struggle and Impending Disaster in Darfur

Since May 1, 2023, Sudan has been a hotbed of conflict, with the Rapid Support Forces (RSF) and the Sudanese army embroiled in an intense power struggle. The RSF, an offshoot of the infamous Janjaweed militias, has seized control of regions in western and southern Sudan, raising concerns of a potential national split akin to South Sudan's secession a decade ago.

The conflict's genesis lies in a plan to merge the RSF and the army, just four years after their joint effort to topple long-time leader Omar al-Bashir. The RSF's primary objective is to secure access to valuable resources like gold and ensure a pivotal role in any future political resolution. General Mohamed Hamdan Dagalo, the RSF's leader, has even proposed that cities under his control should elect their own governments.

The RSF's victories, including the takeover of army headquarters in Nyala, Zalingei, and El Geneina, Darfur state's three out of five capitals, have been disconcerting. Conversely, the army has been struggling with issues such as warplane repairs, dwindling supplies, and salary delays. The situation took a turn for the worse when the RSF temporarily seized control of bases in southern Khartoum and the Jebel Awlia district, leading to mutual accusations of explosions damaging the Shambat Bridge and igniting fuel stores at the al-Jaili refinery.

The conflict has had a devastating impact on the Sudanese population, with the United Nations reporting over 9,000 fatalities and six million displacements out of a population of 49 million. The RSF's advances have raised fears of possible mass atrocities against civilians, with concerns that their rule could worsen the situation for Darfur's 11 million residents due to their alleged inability or unwillingness to control their forces, which have looted entire towns since the war's onset.

The RSF stands accused of severe human rights abuses, including war crimes and genocide. The UN Human Rights Office has documented at least 20 women and girls held in 'slave-like conditions' by individuals in “RSF uniforms” or armed groups “affiliated with the RSF,” and 50 cases of sexual violence, including instances of rape and gang rape. The RSF is also implicated in the attempted ethnic cleansing of the non-Arab Masalit tribe from West Darfur and the assassination of human rights monitors, lawyers, and journalists.

The RSF's actions have drawn international censure, with the United States sanctioning Abdel Raheem Dagalo, the RSF’s deputy leader, for overseeing atrocities in West Darfur. The US embassy in Sudan has voiced concerns about reports of “serious human rights abuses” committed recently in West Darfur.

As the RSF inches closer to total control of Darfur, the world watches anxiously. The region's fate hangs in the balance, with a significant humanitarian disaster looming. The Sudanese people, already subjected to immense suffering, now face the prospect of escalating chaos and human rights violations under RSF rule. The international community must not ignore this impending crisis. The people of Sudan deserve peace, justice, and an opportunity to rebuild their lives.

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