Germany Risks €24 Billion Budget Hole, Lawmaker Says

Germany Risks €24 Billion Budget Hole, Lawmaker Says

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(Bloomberg) — Germany has a potential hole in its 2024 budget of as much as €24 billion ($26.4 billion), though the exact figure is still very much up in the air, according to a senior lawmaker from Chancellor Olaf Scholz’s ruling coalition.

The government in Berlin has been forced to overhaul its finance planning due to this month’s bombshell judgment by Germany’s top court, which called into question the practice of using special funds. As things stand, billions of euros must be shifted into the regular federal budget next year without breaking rules that restrict net new borrowing.

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Otto Fricke, a member of the Bundestag’s budget committee for the Free Democrats, said that means the government needs to find between €14 billion and €24 billion.

At the same time, he poured cold water on calls from the FDP’s coalition partners — Scholz’s Social Democrats and the Greens — to trigger an emergency suspension of the borrowing limit, known as the debt brake, for a fifth straight year in 2024.

“I don’t see the debt brake being suspended again,” Fricke said Wednesday in an interview with Bloomberg Television. He called on the FDP’s partners in the governing alliance to compromise on spending priorities, while dismissing suggestions that the coalition could collapse or a new general election will be called.

“All three partners have to find their way of getting out of it,” he said, adding that he doesn’t see tax increases as a viable option to plug the spending gap.

Scholz and top officials from the coalition are meeting on Wednesday evening for more talks on seeking a solution to the unprecedented budget turmoil. 

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The government on Monday approved a supplementary 2023 budget that includes another suspension of the debt brake. While it doesn’t mean that Germany is adding to its debt burden, the move lifts the figure for net borrowing for this year by €25 billion to €70.6 billion, according to the Finance Ministry.

Finance Minister Christian Lindner, the fiscally hawkish FDP leader, hasn’t ruled out setting the debt brake aside again in 2024 but would struggle to sell such a move to his party base.

Additional highlights from Fricke interview:

  • Germany’s €100 billion fund for military spending is protected from the court ruling as it’s written into the constitution
  • There will still be energy subsidies paid out next year but the amount is still to be determined; in any case there will be less money available
  • The ruling coalition also has to look at cutting subsidies for harmful fossil fuels

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