Germany’s 2025 Budget Deficit Target Narrowed

By Maria Martinez
BERLIN (Reuters) – Germany’s coalition government reached a deal on Friday to reduce its 2025 budget deficit target from 17 billion euros ($19 billion) to 12 billion euros, aiming to salvage the spending plan after earlier proposals fell apart.

The cabinet approved its 2025 budget in July after months of negotiation but did not specify how to close the gap between projected spending and revenue. Finance Minister Christian Lindner indicated a preference for a single-digit deficit target.

“It would be better if it was in single-digit figures,” Lindner stated on Friday, regarding the newly agreed deficit target of 12 billion euros.

“This is somewhat higher than I would wish for as finance minister.”

The agreement enables a draft budget plan to be presented to parliament, keeping legislative processes on track for approval by the end of the year.

Under the agreement, Deutsche Bahn’s infrastructure division will receive 4.5 billion euros in equity, replacing previous subsidies. Additionally, Deutsche Bahn will secure a 3 billion euro loan from the government to redeem market-issued infrastructure bonds.

German Chancellor Olaf Scholz remarked, “Compared to the July decision, we have opted to invest more in transport infrastructure with additional capital and loans for Deutsche Bahn and have made further general savings.”

The draft budget for 2025 includes 15.1 billion euros for rail infrastructure investments. Notably, the equity and loan do not affect the debt brake, which caps public borrowing at 0.35% of GDP.

“The debt brake is therefore respected,” Lindner emphasized, stating that all measures were constitutional.

The government meticulously reviewed constitutional compliance to avoid a repeat of a November 2023 incident, when a court ruling left a 60 billion euro gap in public finances.

In July, the government considered various options, including converting grants from Deutsche Bahn and the highway company into loans, acknowledging the potential issues with those alternatives.

Additionally, the government will benefit from an extra 300 million euros from Uniper, which is now expected to pay 2.9 billion euros instead of 2.6 billion euros. The budget also includes a 200 million euro reduction in the provision for tax revenue loss associated with the EU energy crisis fund.

Scholz stated that budget legislators could commence discussions on the upcoming budget promptly after the parliamentary summer break. Debates will kick off in the second week of September, with the Budget Committee’s final review set for November 14. The budget is aimed to pass through both houses of parliament by year-end.

Lindner expressed optimism that the projected deficit could be further minimized by November.

($1 = 0.9080 euros)