Germany's austerity package delayed by parliamentary upper house

Germany's upper house of parliament threw the government's austerity plans into some confusion on Friday by halting their implementation, at least temporarily. 

The Bundesrat - which represents Germany's federal states - rejected  the spending cuts for hospitals contained in the coalition government's package, and referred them to parliament's mediation committee. 

It was first time the upper house has stopped a law since Merz took office in May

Federal Health Minister Nina Warken had hoped the measure would ease the pressure for further increases in additional personal health insurance contributions on January 1 2026.

The federal states' opposition to the government's plan is directed against savings of €1.8 billion (about $2 billion) in hospitals, which are to make up the majority of the austerity package totalling €2 billion. 

Germany has a universal, mandatory health-insurance system built on a social health insurance model. Most residents are covered through non-profit funds that are financed by income-based personal contributions.

Warken said the Bundesrat's decision to refer the plan to the mediation committee casts a shadow over the common goal of putting statutory health insurance and long-term care insurance on a stable footing in order to avoid contribution increases.

"Ever-higher contributions or tax subsidies cannot be the solution," she said.

However, there was a clear cross-party rejection of the plan in the Bundesrat. 

German Chancellor Friedrich Merz had already promised that health insurance contributions would not rise on January 1, 2026.

However, health insurance funds and the opposition warned even before Friday's decision in the Bundesrat that additional contributions would probably rise in 2026, as many funds would have to replenish their reserves to the prescribed minimum levels.