Protests, price rises: What to expect from 2024

I've made some predictions for 2024... let's see how accurate they turn out to be.

Photo by Nicole Avagliano on Unsplash

Dear Reader,

I’ve spent the past few days studying Olaf Scholz’ sweaty palms to understand what secrets the next year holds. And I’m afraid to tell you that I didn’t like what I saw.

Let’s at least start with the good news…

Hurrah! tax relief

One of the few good tidings for the year ahead is impending cuts to income tax.

Last year, finance minister Christian Lindner hoped to win voter’s hearts by announcing €10 billion in tax relief. At the beginning of this month, he offered another round of tax cuts as compensation for the bitter pills people will have to swallow elsewhere in life (see below).

Starting in January, income up to the level of €11,784 will be completely tax free. To give a sense of what that means, someone with no children on an average salary (€39,000) will have €25 more on the netto side of their pay slip at the end of the month.

Meanwhile, there is good news for the upper middle classes, too. The top tax rate will be raised to €66,700 and the tax-free allowance per child will go up to €6,612. Both changes affect higher earners (the great unwashed get Kinder-geld payments instead of tax relief). Starting in January, a family with two children on a household income of €100,000 will have €93 more in their pockets every month.

I’m sorry to say that that was about it for the good news. Here are all the bad things that will happen in 2024…

Life will get more expensive

Following two years of painful price rises, inflation is just starting to come back down to a bearable level. But things are going to get more expensive again next year.

Why am I so sure? Because Olaf Scholz has been forced to find new ways of funding the federal budget after the country’s top court told him that he couldn’t finance it by opening up cheeky side budgets.

One of the main levers he has pulled is a hike to the CO2 tax. The tax was supposed to go up moderately in January, but it is now going to jump from €30 to €45 per tonne of CO2.

In plain terms, that will add a little over 4 cents to the price of a litre of petrol.

The tax is probably a good thing overall as it has the dual benefit of bringing money into the exchequer and cutting fossil fuel usage. Economists seem to like it because it is a simple, transparent way of encouraging the use of cleaner energy sources.

On the down side, hiking the CO2 tax will make lots of things more expensive. You will notice it directly at the petrol pump and in your heating bill. But it will also have knock-on effects on the cost of food and other goods since it will drive up production and transport costs.

These costs are going to hit the poor harder than the rest of us. Which is why in its coalition pact the ‘traffic light’ coalition promised to give some of the money back in the form of a Klima-geld. However when these payments will be introduced remains a mystery. Whenever they’re asked about it, government ministers go into waffle mode.

The CO2 tax is not the only bad news for those anxious about rising living costs. The government has also ended the energy price cap early. That will show up in heating bills, although you may only notice this when you receive a demand for a Nachzahlung from your landlord in the following year.

Scholz’ team have also confirmed that they can no longer cover the costs of modernising the electricity grid. This money is now going to be passed on to the consumer in full by the grid operators. The estimated annual increase in the electricity bill for a four-person home: €120.

The economy will continue to flatline

All of Germany’s economic institutes are predicting another year of economic gloom.

The Munich-based Ifo Institute is forecasting growth of 0.9 percent for 2024, a figure that would put Germany among the worst performers in the developed world. “Uncertainty is currently delaying the recovery, as it increases consumers’ propensity to save and reduces the willingness of companies and private households to invest,” the Ifo says.

The weathermen at the Berlin-based German Economic Institute also see dark skies ahead. Nevertheless, they believe the clouds will lift as the year goes on:

“Positive stimuli for the economy next year (2024) and the year after are likely to come from a further fall in the inflation rate, strong wage increases and rising real wages. The household savings rate is likely to slowly decline and money will be a little looser again. Consumption will be higher, but still more restrained than before the coronavirus pandemic.”

One piece of good news economists have highlighted this year is that knots in the global supply chain that appeared during the pandemic have been ironed out. The bad news though is that an escalation of the war in the Middle East could create new gnarls. Attacks by Iranian proxy groups on shipping through the Red Sea are already causing havoc to freight schedules, something that Germany is particularly vulnerable to.

Inner cities will be visibly emptier

On the subject of price rises, I forgot to mention that a meal at your favourite restaurant is also going to cost you more. The government has decided that it is time to push the VAT rate for restaurants back up to the pre-Covid level of 19 percent (from 7% today). 

While proponents of this measure argue that it is only right that restaurants pay the standard rate, gastronomy lobby group DEHOGA says that we are living in different times. Restaurants are struggling with labour shortages, while food prices have gone up faster than the official inflation rate. The DEHOGA warns that a third of its members will struggle to survive.

Eateries might not be the only ones boarding up their shop fronts in 2024.

Industry insiders are predicting that Karstadt - Germany’s last major department store - will soon file for bankruptcy. The department store was kept alive by real estate magnet Rene Benko, but his business went belly up in November after his debt-fuelled empire came crashing back down to earth. If the department store closes for good, most German towns will have another empty building in their city centre.

Germany will continue to dither on Ukraine

On the one hand, Olaf Scholz has made it perfectly clear that he has no intention of letting Ukraine lose the war. In reference to a possible Trump victory in the US, he says that Germany will step in “if other supporters draw back their aid.”

On the other hand, he will still shy away from making the bold decisions that would give Kyiv the means to achieve a breakthrough on the battlefield.

Most pertinently, he will maintain his blockade on supplying Kyiv with Taurus cruise missiles, which are capable of hitting the Russian command centres far behind the battle lines. German munitions supplies will also allow the Ukrainians to hold their defensive lines without giving them the means to go on the attack.

All the while, Scholz’ chief of staff, Wolfgang Schmidt, will maintain his discreet efforts to push for a negotiated solution that will entail Kyiv accepting territorial losses.

Protesters will clog up the streets

It could be farmers disgruntled at the fact that their subsidies are being cut, renters demanding expropriation and price controls, or small town folk furious at the rising cost of petrol. Just where the anger will bubble up is hard to tell, but the true effects of years of mismanagement in a number of key ministries will be clear to see - and the inevitable result will be more social unrest.

What we will see much less of though, is street blockades by climate activists.

Eastern Germany will become ‘ungovernable’

Three east German states will go to the polls in September and the Alternative for Germany (AfD) will sweep the board with shock wins in all three states. Current polling gives the far-right party comfortable leads in Brandenburg, Saxony and Thuringia. In the latter two they are set to win well over 30 percent. 

At the state level in the east the party are especially radical. Their leader in Thuringia, Björn Höcke, has attended neo-Nazi rallies, is friends with Germany’s most famous neo-Nazi, and probably once penned texts for a Nazi magazine under a pseudonym.

In both Saxony and Thuringia, domestic intelligence have classified the AfD as “proven extremists.” In practical terms, that means that none of the other parties will contemplate working with the AfD at any point in the near future. Any sudden change of heart would be an act of political suicide.

That all puts the centre-right Christian Democrats into an unenviable situation. After the elections they will be forced into weak three-party coalitions with centre-left parties. The situation in Thuringia looks particularly desperate: a bizarre combination of hard-left (Linke) and conservative (CDU) could be the only way of keeping the AfD out of power there.

At the same time, Thuringia has managed to survive with a minority government for the past four years and has largely stayed out of the national headlines. State politics in Germany is remarkably stable. At the regional level, parties tend to be better at putting their differences aside and getting on with the job than is the case in Berlin.

Police will have their work cut out

The morning of January 1st could prove to be a harbinger of a difficult year to come for German law enforcement. Officers in Berlin were completely overrun by rocket-firing youths in the Neukölln district during New Year celebrations this year.

And, with the Arab youth of Neukölln seething over what they see as German acquiescence in Israeli war crimes, things are only likely to escalate further this year. The only thing that could keep the lid on things is the fact that the police are not going to be caught off guard this year. They will be out in huge numbers on Sunday evening but the task ahead of them will still be massive.

Throughout the year, German investigators will have their work cut out dealing with a rise in Islamist plots in response to the war in Gaza. The heightened threat level has already led to several arrests in the closing weeks of this year. The latest of these saw Cologne Cathedral being closed to tourists over fears that ISIS had it in their sights.

Scholz will limp into final year as sitting duck chancellor

Rumours that the traffic light coalition is on the point of collapse will prove to be just that: rumours. Cautious old Olaf Scholz won’t do anything dramatic like ditching his junior coalition partners in favour of a coalition with the CDU. Nor will he call snap elections. Instead, he will remain convinced that he can turn things around before the election in 2025, just like he did in 2021.

But constant squabbling between the Greens and the Free Democrats over who is responsible for the rise in living costs will mean that there will be no late love affair between his doomed coalition and the German public.

Smoking weed will become legal

Finally though, there is good news for anyone who wants to forget what is going on in the world around them. Cannabis is going to be legalised at some point in 2024. In the future, Germans will be able to grow their own plants at home as well as joining “cannabis clubs” where they can nurture marijuana bushes along with fellow enthusiasts.

Legalisation was supposed to happen in January, but it wouldn't be a ‘traffic light’ law without months of delays. The health ministry is now saying that the drug will be legalised on April 1st. But tedious arguments about the legal small print mean that we are still waiting for a final version of the bill to be put to cabinet.

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Have a great New Year!

Jörg Luyken