How Germany plans to slam on its debt brake again
Big squeeze
Over the past three years, Germany abandoned its strict rules on spending to deal with Covid and the energy crisis arising from the Ukraine war. Today marks a belated return to fiscal orthodoxy, writes Guy Chazan.
Context: Weeks of tense negotiations over the 2024 budget stretched unity in Chancellor Olaf Scholz’s three-party coalition to breaking point. Scholz himself had to intervene as cabinet ministers balked at finance minister Christian Lindner’s proposed spending cuts.
Lindner will appear before journalists in Berlin this afternoon to present the result.
A key goal for the fiscally hawkish leader of the Free Democrats (FDP) was to reinstate the Schuldenbremse or “debt brake” — a constitutional cap on new borrowing. In that, Lindner succeeded.
The federal government will take on just €16.6bn of debt next year, compared with €45.6bn this year, €115.4bn in 2022 and a whopping €215.4bn in 2021.
But to get Germany back on to the path of fiscal rectitude, Lindner had to squeeze government spending till the pips squeaked. All the ministries except defence will have to make savings. The health ministry, for example, will see its budget cut by a third.
In view of the Ukraine war, defence was the only ministry whose budget increased, from €50bn to €51.8bn.
Finally, Germany will be able to reach Nato’s target for military spending of 2 per cent of GDP.
Much of the extra budgetary spending will, however, go towards higher personnel costs arising from a tariff agreement made with unions this year.
Spending is finally coming down after the profligacy of the past few years, but it remains high compared with pre-pandemic levels.
In 2019, the year before the Covid crisis, the federal government spent €356bn.