CashNews.co
(Bloomberg) — German Finance Minister Christian Lindner will take full advantage of some extra wiggle room under the country’s debt rules and increase net new borrowing next year by about €5 billion ($5.5 billion), according to people familiar with the plans.
A mechanism enshrined in Germany’s constitution allows for additional new debt in times of economic weakness. The government this week cut its forecast for gross domestic product next year and now expects a contraction of 0.2% instead of minimal growth, meaning Lindner can expand net borrowing by around 10% to €56.5 billion, said the people, who asked not to be identified discussing confidential information.
The plan was first reported by the Bild newspaper and Der Spiegel magazine.
Chancellor Olaf Scholz’s ruling coalition secured an agreement on next year’s finance plan in August only after weeks of squabbling over limited funds.
The draft sent to parliament for scrutiny by lawmakers included a financing gap of around €12 billion, which Lindner said he hoped would narrow due to stronger than projected tax revenues and lower than expected outflows of earmarked funds.
The extra borrowing will help offset the €12 billion shortfall but won’t close it completely, one of the people said. The government’s experts are due to publish their latest forecasts for tax income on Oct. 24.
Lindner published a post on X on Friday with a link to the Spiegel article. He stopped short of directly confirming the additional borrowing but said the automatic adjustment following the cut in the government’s economic forecast demonstrates the flexibility of Germany’s debt rules.
The Free Democrat leader insisted on restoring the mechanism — known as the debt brake — after it was suspended to help the government deal with the fallout from the Covid-19 pandemic and the energy crisis.
The budget committee in the lower house of parliament is expected to approve the extra borrowing at a meeting next month, one of the people said. Asked about new debt next year, a finance ministry spokeswoman referred to Lindner’s X post.
Opinion polls show that all three coalition parties — Scholz’s Social Democrats, the Greens and Lindner’s Free Democrats — have suffered a dramatic drop in voter support ahead of the next election due in September 2025.
The main opposition conservatives and the far-right AfD party are in first and second place, respectively.
©2024 Bloomberg L.P.