German Chancellor Olaf Scholz smiles during a question time on July 3, 2024 at the Bundestag (lower house of parliament) in Berlin.
Ralf Hirschberger | Afp | Getty Images
German government leaders on Friday agreed on an outline for the country’s 2025 budget after intense negotiations to bridge a gap worth billions of euros.
“With this budget, we are creating security and stability at a time that is marked by uneasiness and uncertainty,” Chancellor Olaf Scholz said, according to a CNBC translation.
Scholz flagged several key points from the budget, which he said included “record investment.”
“It is about a strong defense, a strong [German army] that offers protection from the aggressive tyrants of our time. Therefore, we will fulfil NATO’s 2% goal every year,” he said, with reference to the pledge of NATO allies to commit at least 2% of their GDP to defense spending.
He added that significantly more money would be allocated to housebuilding and affordable homes, noting that the sum would be in the “high billions.”
An economic growth initiative has been planned alongside the budget, Scholz said. Among other items, it aims to boost the incentive for investment, reduce bureaucracy, and ensure affordable energy, he explained.
The budget bill still faces a few months of scrutiny. Scholz on Friday confirmed that his cabinet will sign off on the plans when it next meets on July 17. But the budget must then be discussed by the German parliament after its summer break, before being finalized later in the year.
Negotiations have been ongoing for weeks after spending plans shared by individual ministries exceeded constraints by billions. German Finance Minister Christian Lindner previously said some ministries had been excessive with their request.
“There are individual departments that have submitted exorbitant wish lists — Christmas, Easter and birthdays combined, so to speak,” Lindner said in May, according to Reuters. “That is not acceptable.”
Tensions were stoked after a late-2023 constitutional court decision blew a 60-billion-euro ($64.8 billion) funding gap in the government’s budgetary plans for the years ahead.
The government had been planning to re-allocate unused debt that was originally taken on as emergency funding during the Covid-19 pandemic to its ongoing spending plans.
The court ruling stopped this and threw the government into a budget crisis that prompted discussions about the country’s debt brake, which restricts how much debt the federal government can take on and caps the maximum size of its structural deficit.
Discussions around the merit of the debt brake, which has been a cornerstone of German fiscal policy since 2009, have also re-emerged as part of the discussions about the budget.