by (Bloomberg) — Germany’s finance minister Christian Lindner faces a €12 billion ($12.7 billion) shortfall in his budget for next year, raising the prospect of a battle within the tripartite government coalition over the allocation of funds gets bigger.
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Lindner, who heads the business-friendly Free Democrats and portrays himself as the custodian of stable finances, pushed for a constitutional cap on net borrowing to be reinstated from this year, and has limited leeway again in 2024.
Under the “debt brake” mechanism, which was suspended for three years due to the coronavirus pandemic and energy crisis, the federal government will be allowed to borrow a net $15 billion next year, according to Treasury Department documents obtained by Bloomberg and People. familiar with budget planning.
Lindner plans to use up all that leeway, but then he would still be $12 billion short, the people said, asking not to be named because the funding plans are not public. It also means he will not be able to meet demands for extra money totaling €70 billion from cabinet colleagues, including Defense Secretary Boris Pistorius.
Pistorius, a member of Chancellor Olaf Scholz’s Social Democrats, has asked for an additional €10 billion to help Germany’s renewed push to modernize its armed forces.
A spokeswoman for the finance ministry in Berlin declined to comment.
Lindner is trying to push Germany back to a policy of balanced budgets and away from the heavy spending and borrowing unleashed to offset the impact of the pandemic and energy crisis on Europe’s largest economy.
At the same time, Scholz’s government has created off-budget funds totaling €300 billion to help businesses and households hit by high energy prices and fund an effort to reverse decades of underfunding in the armed forces.
The move has been criticized by opposition lawmakers, who accuse the ruling coalition of accounting gimmicks that mock the debt brake and fiscal irresponsibility that will burden future generations.
According to Treasury Department documents, Germany’s structural deficit will rise to 4.5% of gross domestic product next year, well above the European Union’s limit of 3% under the bloc’s Stability and Growth Pact. The debt ratio is expected to rise to 70%, which is still relatively low compared to the German Group of Seven partners.
Lindner’s room for maneuver will be further limited next year by the increase in interest payments on Germany’s existing debt, which has increased tenfold over the past two years to €40 billion. He may get some respite if the federal government brings in more than expected tax revenue.
The preliminary draft budget for 2024 will be signed in cabinet on March 15, with updated tax estimates in May. The final draft, including a financing plan through 2027, will be sent to parliament in June, triggering months of negotiations in committee before being approved at the end of the year.
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