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Olaf Scholz’s coalition seals 2024 spending plan after approving deep cuts to transport, industry and green projects

Germany’s government has clinched a last-minute budget deal, averting a financial shutdown in January and plugging a projected €17bn hole opened by a landmark court ruling. 

After weeks of tense negotiations, Olaf Scholz’s coalition agreed painful cuts to green energy and construction subsidies, transport spending and support measures for industry in order to comply with Berlin’s strict public finance rules.

Funding for Ukraine against Russia’s full-scale invasion and social security spending would be protected, the chancellor said. The government will also raise the carbon price more than planned next year.

Scholz acknowledged the tougher financial environment ahead for the EU’s largest economy, which is forecast to have only a small rebound in gross domestic product next year.

“The government is sticking to its goals. We are forging ahead with the climate-neutral transformation of our country,” Scholz said on Wednesday. “We are strengthening social cohesion and we are standing by Ukraine’s side in its defence against Russia . . . [but] it is clear that we must manage with significantly less money in order to achieve these goals.”

In a ruling last month, Germany’s top court declared that €60bn of funding allocated to its KTF special climate fund violated the country’s constitutionally enshrined debt brake, which tightly limits government borrowing, throwing financial planning for 2024 into disarray. 

Scholz said the government would not seek to repeal the debt brake next year, despite the long-term questions keeping it has raised in Germany. The brake prohibits Germany from running a fiscal deficit exceeding 0.35 per cent of GDP. It had been suspended for four years as a result of the coronavirus pandemic and the energy crisis fuelled by deep cuts in imports from Russia after its invasion of Ukraine last year.

The chancellor said that if the situation in Ukraine deteriorated, the government was prepared to seek emergency funding through a partial suspension of debt brake rules in the coming months.

Some painful cuts to environmental policies were necessary, said vice-chancellor Robert Habeck, of the Green party. “That’s the price we have to pay for retaining the central components . . . development of the hydrogen economy, decarbonisation of industry and citizens’ programmes.”

The KTF will have its spending plans cut by €12bn next year, the government said, while environmental subsidies for homeowners would also be scaled back.

Government funding for Germany’s railways will be reduced, though the shortfall will be plugged with a plan to sell off real estate around the rail network.

In a partial offset to curbs on green policies, €3bn of subsidies earmarked for polluting industries will also be cut.

Finance minister Christian Lindner, of the fiscally hawkish Free Democratic party, welcomed the agreement and said it showed Germany was committed to a “course of fiscal consolidation”.

A €15bn package of tax cuts for households would go ahead as planned, Lindner said, as well as a €3bn reduction in electricity taxes.

The budget deficit will shrink again next year, he said, to 1.5 per cent. It was 3.6 per cent in 2021.

“We have achieved a turnaround . . . the debt brake continues to be of great importance to us. I think this is a balanced, good package that will move our country forward.”

Before the next generation of wireless communications is rolled out, better take-up of this one is needed

This month, a consortium of global telecoms standards organisations declared plans to work on a sixth generation of superfast wireless cellular communications specifications. But consumer take-up of 5G has been lacklustre. One wonders whether 6G, due out next decade, will attract much attention.

Mobile carriers such as Verizon, AT&T and T-Mobile promised that 5G networks would transform our lives. Auctions for bandwidth hit a record in 2021 when Verizon bid more than $45bn. Yet many smartphone customers struggle to notice any difference.

About two-thirds of US mobile phone customers have tried 5G networks, according to a survey by Global Wireless Solutions. Still, ABI Research expects more subscribers to use 4G by the end of 2023.

Blame the way in which 5G was rolled out. Upgrades were piecemeal and offered little improvement. Extra speed, capacity and connectivity available on standalone networks have yet to be used fully.

The 4G networks released in the early 2010s enabled mobile phone users to stream videos, play games and make conference calls. 5G can be used for high-quality virtual and augmented reality and allow instant communication between devices such as autonomous vehicles. But these latest functions have yet to gain mass appeal.

New 6G could enable data speeds up to 50 or 100 times faster than 5G. Companies such as Huawei and Nokia say it should be ready to roll out in the early 2030s. Both the US and China are determined not to let the other gain an advantage.

However, data from CB Insights shows that mentions of 5G during earnings calls peaked in 2021 and have since fallen. Network operator capital spending growth is expected to dip next year. Operators want to see better returns on their investment in 5G before they contemplate further network upgrades.

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The distressed-investing giant’s new fund makes private-equity and debt investments in midmarket businesses

Oaktree Capital Management has closed its third special-situations fund to invest in midmarket companies struggling with high debt or other financial challenges.

Oaktree wrapped up fundraising for its Special Situations Fund III with about $3 billion, including commitments to related vehicles, people familiar with the matter said. The sum exceeds the Los Angeles firm’s initial target of $2.5 billion and the $2.3 billion raised by a 2018-vintage predecessor fund, the people said.

Investors that committed to the new pool as limited partners include the Minnesota State Board of Investments and the Teachers’ Retirement System of Louisiana, according to public pension-fund documents.

Oaktree amassed the sum during a difficult time for raising capital for private-equity and private-debt vehicles aimed at backing companies under financial stress. Such funds surged in popularity in 2020 and early 2021, as the Covid pandemic spurred high rates of corporate defaults and created an abundance of investment opportunities, but they have since struggled to gain traction among investors.

Funds that invest in distressed debt raised just under $10 billion globally from the start of the year through Oct. 27, down from about $32 billion in 2022 and $37 billion in 2021, according to PitchBook Data, which collects information about private markets.

Oaktree’s fundraising effort may have been boosted by a strong performance so far by the credit specialist’s previous special-situations fund. It posted an internal rate of return of about 45% through June, according to data from the School Employees Retirement System of Ohio, which backed the vehicle.

Oaktree manages about $183 billion across debt, private equity, real assets and other strategies. Founded in 1995, Oaktree went public in 2012, and was taken private again in 2019 by Canadian asset-management firm Brookfield.

Oaktree’s special-situations funds are more like private-equity funds than distressed-debt vehicles, though they invest in both debt and equity. The funds are intended to thrive in good and bad financial conditions, targeting private equity-like returns by backing companies contending with temporary financial issues.

Oaktree’s special-situations funds typically invest around $125 million to $150 million per deal in North American midmarket companies broadly across industries and sectors. The funds aim for control or significant influence over the businesses they back. So far, the firm has invested about $1 billion from its new vehicle.

Companies backed by Oaktree’s special-situations strategy include MBS Group, which provides services to film and television studios, and barbecue grill maker Blackstone Products.