Germany plans to significantly reduce spending and new borrowing next year, betting on a “normalization” of fiscal policy after deviations linked to the pandemic and the energy crisis, according to the budget bill presented on Monday. By contrast, military spending will reach a record level to revamp the Bundeswehr, a priority project since Russia’s invasion of Ukraine, and reach the NATO-recommended 2% of GDP next year.
Olaf Scholz’s government painstakingly completed this project that must be approved by the Council of Ministers on Wednesday and led to a rat race between the three coalition parties against the savings demanded by the liberal finance minister, Christian Lindner.
Compliance with the annual debt rule of less than 0.35% of GDP
The euro zone’s largest economy, which went into recession this winter, expects to spend $445.7 billion next year, compared with $476.3 billion this year. But spending in 2024 will be 25% higher than the 2019 level, the project says. The drop in new debt is more drastic with 16.6 billion expected for 2024 compared to 45.6 billion in 2023. In this way, Germany will respect its constitutional rule of “debt brake” that prohibits the State from borrowing more than 0.35% of its GDP each year, ensures the finance law. After being suspended for three years in a row for the government to inject the billions intended to limit the impact of the Covid-19 pandemic, this ceiling has been in force again since this year.
But for the 2023 budget to comply with the debt brake, Germany has resorted to a true juggling act, with the multiplication of special funds, not accounted for in the official budget. In particular, these funds have allowed for generous spending to support households and businesses in the face of rising energy prices.
It is in one of these exceptional envelopes that the Government will turn to achieve, in 2024, “the contribution of 2% of GDP to NATO objectives”, according to the budget project, a commitment by Olaf Scholz. A sum of 51.8 billion euros will come from the regular defense budget, a new high after the roughly 50 billion euros in the 2023 budget. To this will be added 19.2 billion euros from the “special fund for the Bundeswehr”, a fund with a total of 100,000 million euros announced by the Chancellor after the invasion of Ukraine and of which up to now only a tiny part has been spent.
Source: BFM TV
