Germany to Take On Additional €8 Billion in Net Debt in 2025

(Bloomberg) -- Germany’s federal government will have more borrowing leeway next year and net new debt will be about €24 billion ($25.8 billion) instead of the €16 billion the finance ministry projected in July, according to people familiar with the plans.

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The rules set out in Germany’s “debt brake” mechanism allow additional room to borrow in times of economic weakness and Finance Minister Christian Lindner will take full advantage of the extra €8 billion available, said the people, who asked not to be identified discussing confidential information.

Net new debt is projected to be around €40 billion this year, down from about €70 billion in 2023, after Lindner restored constitutional borrowing limits for the first time since 2019.

A spokeswoman for the Finance Ministry in Berlin declined to comment on the additional borrowing but indicated that recent revisions to government growth forecasts provided extra budget leeway of about €8 billion. The plans for increased borrowing next year were first reported by Der Spiegel magazine.

Chancellor Olaf Scholz’s ruling alliance of his Social Democrats, the Greens and Lindner’s Free Democrats is aiming to get next year’s budget approved in cabinet in early July before it’s sent to parliament in mid-August.

There are likely to be weeks of inter-party wrangling — much of it played out in the media — before an agreement can be reached as the hawkish Lindner forces spending restraint on his cabinet colleagues.

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The debt brake was suspended to help deal with the fallout from the Covid-19 pandemic and the energy crisis but its restoration means all ministries except defense will again need to make do with less cash next year.

Defense Minister Boris Pistorius is excluded from the savings drive to enable Germany to keep Scholz’s promise to meet NATO’s goal of spending at least 2% of gross domestic product on the armed forces over the longer term.

Germany’s latest budget dilemma is another sign of the extent to which a constitutional court ruling last year on the use of off-balance sheet funding upended the government’s finance planning.

The judgment meant spending commitments underpinning the coalition’s blueprint for government were suddenly constrained by a borrowing limit that officials thought they had circumvented.

After it’s sent to parliament, the 2025 budget law would be expected to win approval from lawmakers in both the lower house, or Bundestag, and the Bundesrat upper house, where the 16 regions are represented, by the end of the year.

(Updates with detail on finance ministry in fourth paragraph)

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