Germany plans to cut spending and borrowing substantially next year following massive outlays during the coronavirus pandemic and energy crisis, a draft of the budget showed Monday.
But the defense budget will hit a record high, and is expected to reach the two-percent NATO spending target, as Berlin invests in overhauling the military in response to Russia’s invasion of Ukraine, it showed.
There have been drawn-out negotiations in the three-party ruling coalition over the budget due to cost cuts demanded by Finance Minister Christian Lindner, from the pro-business FDP party, but the cabinet is finally due to approve it Wednesday.
Europe’s biggest economy, which fell into recession at the turn of the year, is forecasting spending in 2024 of 445.7 billion euros ($486.2 billion), compared to 476.3 billion planned for this year.
The reduction in new borrowing is even more drastic, with 16.6 billion euros planned for next year compared to 45.6 billion in 2023.
Germany should thus comply with its constitutional “debt break” which limits new annual borrowing to 0.35 percent of gross domestic product a year, according to the draft.
After being suspended from 2020 as Germany spent huge sums to tackle the coronavirus crisis, the budget rule came back into force this year.
But to ensure that the 2023 budget complied with the debt break, the government has had to resort to creating several special funds that are outside the official budget.
They have been used in particular to help households and businesses cope with rising energy prices after Russia slashed crucial gas supplies to Europe amid the Ukraine war.
The government will tap one of these funds to ensure it hits the NATO spending target in 2024, according to the draft budget.
A sum of 51.8 billion euros will form the regular defense budget, a new high after about 50 billion in the 2023 budget.
There will be an additional 19.2 billion euros from a special, 100-billion-euro pot for the military that Chancellor Olaf Scholz established after the start of the Ukraine war.
