Germany agonises over €200 billion budget hole
Germany's governing parties had loosened the country's strict debt rules earlier this year, allowing the coalition to borrow more for additional defence spending and investment in infrastructure.
German Finance Minister Lars Klingbeil, a Social Democrat (SPD), praised the planned 'record investment' of €126.7 billion for 2026, including funding for infrastructure and the green transition of the economy. Defence spending will also rise by a third to €82.7 billion.
Germany's constitutional borrowing limit, the 'debt brake', had long prevented investment in strengthening the country's neglected defence architecture and its ageing bridges and roads. Disagreements over how to square policy goals with fiscal constraints had, notably, pushed the previous coalition government to collapse.
Germany's borrowing over the next few years has now been projected to balloon to some €850 billion, according to the 2025 budget draft and long-term planning presented by Klingbeil in June.
It emerged, however, in recent days that this still leaves a budget hole around €30 billion larger than expected, amounting to shortfalls of €172 billion through 2029.
The new figures arose partly because recent government decisions brought forward plans for pension subsidies as well as new compensation pledges for regional states and municipalities, which will lose revenue due to planned growth-enhancing measures.
How Germany plans to spend €850 billion
"I don't see any particular value in keeping the money and not spending it,' Germany's new finance minister said following the unveiling of his first budget.
Klingbeil's popularity 'won't increase'
It remains unclear how the gaps are to be closed, with additional growth unlikely to fill them. The government is currently aiming for more than 1 per cent of annual potential growth through 2029.
Klingbeil said a mix of measures, including more cuts, would be necessary just to fill the 2027 shortfall, expected to amount to over €30 billion.
'This will be one of the biggest domestic challenges that we will have to overcome in the next 12 months,' he told reporters.
'Everyone at the cabinet table will have to make savings,' he said, adding that 'the popularity of the finance minister among the cabinet won't exactly increase'.
Klingbeil also said Germany was planning to reform structures like the ballooning social security systems, for which it had established several expert commissions.
Critics have long urged Germany to undertake deeper structural reforms to balance its books.
"Instead of reforming the debt brake, we urgently need structural reforms to reduce the funding gap,' said Veronika Grimm, a fiscally conservative economist who advises the German economy ministry, led by the centre-right Christian Democrats.
(aw)
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