NewsGermany's billion-euro budget storm: Fears rise as 2025 deficit may hit €20bn amid EU climate plans

Germany's billion-euro budget storm: Fears rise as 2025 deficit may hit €20bn amid EU climate plans

The next budget is also expected to be a challenge for the Scholz government.
The next budget is also expected to be a challenge for the Scholz government.
Images source: © Getty Images | Johannes Simon
7:18 PM EST, January 26, 2024, updated: 9:13 AM EST, January 27, 2024

"Handelsblatt," a leading economic journal, suggests that Germany's 2025 budget will lack billions of euros. Estimates indicate that next year's budgetary financial gap could be a minimum of 13 billion euros. Depending on the calculations, this could surpass 20 billion euros. The shortcoming is potentially a result of extra commitments linked to the climate fund and transition, as reported by dw.com.

Projected double-digit deficit in the budget

As dw.com relays information from "Handelsblatt," a government representative asserts that "the budget gap will be in the billions and present a double-digit value". Consequently, as per the newspaper's report, Olaf Scholz's government plans to forego the preliminary review of fundamental parameters during the derivation of next year's budget.

Generally, the Ministry of Finance negotiates spending limitations with other departments in February. These limits form the foundation for a comprehensive distribution of funds. By March, these are approved by the government, with the finer details sealed by summer, leading to the government's financing.

"Handelsblatt," however, notes that under current conditions, this process is futile, as the government is occupied with the ongoing year's budget. Furthermore, verification seems irrelevant given that, contrary to prior years, there are no funds to allocate. In lieu of this, Finance Minister Christian Lindner plans to dictate upper spending limitations for ministries, based on the preceding year's financial plans.

Only after considerable discussion and dialogue, the present year's budget was established. As of last week, the Bundestag Budget Committee ratified a budget of 476.8 billion euros, supplemented by new loans approximating 39 billion euros, as reported by dw.com.

After enduring years of exceptions, the budget anchor is set to be restored in its entirety. However, the parliamentary clubs of the ruling SPD, Green and FDP coalition have hinted at the possibility of dismantling it under specific circumstances.

Germany's escalating issues

According to facts presented by the Federal Statistical Office, Germany registered a GDP reduction of -0.3% year-on-year in 2023. The rationale is obvious - elevated inflation has curtailed private spending. Experts quoted by German media emphasize that a further production setback could occur in 2024 due to the worsening economic outlook for Germany.

Germany's future economic landscape looks bleak according to the German Institute IFO, which released commentary on the economic situation in key industries - automotive and construction - in January.

Germany's data influences metrics for the entire Eurozone, given its status as the largest economy on the continent. A shrinking GDP spells adverse inflation for Poland, as domestic manufacturers may have to brace for diminished orders from their German counterparts.

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