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(Bloomberg) — Germany’s ruling coalition sealed a final agreement on next year’s draft budget, paving the way for the contentious financing blueprint to be sent to parliament for scrutiny by lawmakers.
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Chancellor Olaf Scholz and his cabinet approved the basic draft last month after weeks of squabbling over limited funds, but Finance Minister Christian Lindner subsequently questioned whether some of the measures might breach Germany’s constitutional borrowing rules.
They included planned loans to the state rail and highway operators and a redirection of funds previously allocated to curb a surge in energy costs after Russia’s full-scale invasion of Ukraine.
That meant Social Democrat Scholz, Lindner of the Free Democrats and Economy Minister Robert Habeck, a member of the Greens who is also the vice chancellor, had to find a way to close a funding gap of around €5 billion ($5.5 billion).
“The 2025 budget draft is ready in time for consultations in the German Bundestag,” the lower house of parliament, Scholz wrote in a post on X on Friday. “This means significant boosts for security, cohesion and additional economic growth.”
The original draft included net new borrowing of €44 billion next year. In an emailed statement, Scholz’s chief spokesman, Steffen Hebestreit, indicated that the accord sealed Friday would mean that will increase by €7.5 billion to €51.5 billion, still in line with the constitutional limit.
The agreement brings to an end — at least for the time being — public bickering between the three ruling parties, which had raised questions about their ability to govern.
Opinion polls show that all three have suffered a dramatic drop in support among voters, with the main opposition conservatives and the far-right AfD party in first and second place respectively ahead of the next election due in the autumn of 2025.
The budget draft still includes a projected financing gap of around €12 billion, according to a senior coalition official.
The government is banking on the shortfall disappearing due to stronger-than-projected growth and tax revenues and lower-than-expected outflows of earmarked funds, added the official, who asked not be identified discussing confidential information.
Lindner, who heads the fiscally hawkish FDP, irritated some of his coalition partners by insisting on restoring the constitutional borrowing limit — known as the debt brake — which was suspended to help deal with the pandemic and the energy crisis.
Critics of the mechanism, installed in the wake of the global financial crisis, argue it prevents Germany from deploying the hundreds of billions of euros needed to deal with challenges like the transition to cleaner energy, expanding the military and an aging population.
The budget would typically be expected to win approval in both the lower house and the Bundesrat upper house, where the 16 regions are represented, by the end of the year.
(Updates with Scholz comments in fifth paragraph, details on net borrowing)
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