German government announces major budget cuts to avoid future ‘iceberg’

Germany’s budget for next year includes spending cuts in all areas except defence in anticipation of growing future debt, the government announced on Tuesday, but critics worry about extra-budgetary ‘special funds’ not counted in the official budget.

Fiscal prudence and a reduction in borrowing were made a priori for the German budget by Finance Minister Christian Lindner, leader of the liberal FDP.

“There is an iceberg straight ahead behind the horizon (…), and we’re responsible not to wait until it appears in front of us – we have to change course now,” the finance minister told MPs on Tuesday, arguing that a significant increase in debt repayments after 2027 made it necessary to reduce the financial burden.

However, the cuts proved controversial within Germany’s three-party coalition government. Chancellor Olaf Scholz (SPD) had to mediate as several ministers resisted reduced spending targets set for all departments except the Defence Ministry.

“This is apparently not the draft of the government but of the FDP,” Matthias Middelberg, an MP from the centre-right CDU, the largest opposition party, noted in parliament.

While the budget was nominally reduced by €30 billion compared to 2023, the opposition also criticised a growing shadow budget of special funds that do not count towards the budget so that Germany formally adheres to the “debt brake”.

The coalition had recently added several new funds to finance projects such as the green transition and increased defence spending after the Russian invasion. The Bundesrechnungshof, Germany’s federal audit office, estimates that the government factually borrows four times more than earmarked in the budget.

“This is massive borrowing hidden through special funds,” Peter Boehringer, an MP from the far-right AfD, criticised.

Germany had increased its borrowing over the past years to offer support during the pandemic and Russia’s invasion of Ukraine. During that time, it also suspended the so-called “debt brake”, a constitutional provision that caps borrowing.

2024 will be the second year in which Germany adheres to the cap again, which Lindner celebrated as “an exit from crisis politics”.

(Nick Alipour | EURACTIV.de)