German Finance Minister Christian Lindner is faced with a shortfall of €12 billion ($12.7 billion) in his budget for next year, raising the prospect of a fight within the three-party ruling coalition over the allocation of funds.
Lindner, who heads the business-friendly Free Democrats and portrays himself as a guardian of stable finances, insisted on restoring a constitutional limit on net borrowing starting this year, and again has limited room for maneuver in 2024.
Under the “debt brake” mechanism, which was suspended for three years due to the coronavirus pandemic and the energy crisis, the federal government is allowed net borrowing of €15 billion next year, according to finance ministry documents obtained by Bloomberg and people familiar with the budget planning.
Lindner intends to use up all of that leeway but that would still leave him €12 billion short, said the people, who asked not to be identified as the finance plans aren’t public. It also means he won’t be able to meet demands for extra cash totaling €70 billion from cabinet colleagues including Defense Minister 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 the armed forces.
A finance ministry spokeswoman in Berlin declined to comment.
Lindner is seeking to nudge Germany back toward a policy of balanced budgets and away from the heavy spending and borrowing unleashed to offset the impact of the pandemic and the energy crisis on Europe’s biggest economy.
At the same time, Scholz’s government has created off-budget funds worth a total of €300 billion to help companies and households hit by high energy prices and finance a push to reverse decades of underfunding in the armed forces.
The move has been criticized by opposition lawmakers, who accuse the ruling coalition of accounting trickery that makes a mockery of the debt brake and fiscal irresponsibility that will burden future generations.
According to the finance ministry documents, Germany’s structural deficit will widen 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 to GDP ratio is expected to rise to 70%, which is still relatively low compared to Germany’s Group of Seven partners.
Lindner’s wiggle room next year is further restricted by the surge in interest payments on Germany’s existing debt, which have jumped tenfold over the past two years to €40 billion. He may be given some respite if the federal government reaps more than expected in tax revenue.
The preliminary budget draft for 2024 is due to be signed off in cabinet on March 15, with updated tax estimates to follow 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 its voted through at the end of the year.
©2023 Bloomberg L.P.
