Budget woes: What can Germany still afford?

This week, the federal parliament, the Bundestag, is engaged in something it should have finished two months ago: It is launching the federal budget for 2024. The center-left government of Social Democrats (SPD), Greens and business-oriented Free Democrats (FDP) caused the delay, as they could not agree on cuts.

The draft budget plans for an expenditure of around €477 billion ($517 bio), €39 billion of which is fresh borrowing. This is the maximum permitted by the so-called debt brake enshrined in Germany's constitution, the Basic Law, which links fresh loans to the country's economic performance.

More than €2.4 trillion in debt

The debt brake was introduced in 2009, ending the government's practice of taking out large loans whenever revenues were insufficient. The "debt brake" was suspended during the COVID-19 pandemic and again after Russia's full-scale invasion of Ukraine.

Germany is now more than €2.45 trillion in debt. In 2024, €36 billion is budgeted for interest payments. "It is common sense to comply with the debt brake again," Finance Minister and FDP leader Christian Lindner told the Bundestag. His coalition partners, the SPD and the Greens, on the other hand, disagree. They would like to take out more loans to modernize the country, calling the debt brake a "brake on the future."

Need for investment

Many roads, bridges, railway lines, and school buildings in Germany need repair. Investment is also needed to promote digitalization, where Germany is still lagging. 

There is a nationwide shortage of hundreds of thousands of apartments, especially for people with low incomes. Public administration and courts are overburdened. 

More money is needed for the phase-out of fossil fuels and the climate-neutral restructuring of the economy. The government had earmarked €60 billion for this by reallocating a loan intended originally to soften the impact of the COVID-19 pandemic. The Federal Constitutional Court in November ruled against the reallocation of the funds, dashing the government's plans.

There is also a shortfall in the military sector. Some €100 billion in fresh debt was taken on in 2022 and allocated to the military, the Bundeswehr, which has been in a desolate state for years. This money is intended for the purchase of new equipment over several years. But it will not be enough, especially as arms deliveries for Ukraine are now also to be financed through the Bundeswehr special fund.

The situation would become even more difficult if the United States, Ukraine's largest financier, were to end its support for Ukraine. Then, the Europeans would have to step in, which would have a huge impact on the German budget.

If Ukraine needs more support, the SPD and the Greens want to suspend the debt brake again.

2025 federal election

There is a gaping hole of at least €16 billion in the planning for 2025, details of which are to be presented in March. Economic output is shrinking in Germany, which will mean a decline in tax revenues.

It will be a decisive year with the next federal elections in September 2025. As long as they still have the power to do so, the SPD will try to prevent cuts in the social sector, the Greens will push for funds for climate protection, and the FDP will continue to want to make savings and refuse to raise taxes.

The largest opposition group in the Bundestag, the center-right Christian Democrats (CDU) and Christian Social Union (CSU), is doing well in the polls and is calling for cuts to social benefits for the unemployed, which costs €44 billion per year, and to spending on refugees.

"We have 1.7 million benefits recipients registered as unemployed but could start working any time," said Mathias Middelberg, a lawmaker in the CDU/CSU parliamentary group. "The issue of asylum is now also a massive cost factor; we are spending €27 billion on it, including combating the causes for migration and flight."

The latter refers to development cooperation and humanitarian aid. These two areas are already the biggest losers in the 2024 budget, according to VENRO, the umbrella organization of development and humanitarian NGOs in Germany. The Ministry for Economic Cooperation and Development (BMZ) budget will be cut by almost 10%, while humanitarian aid will be reduced by 20%. This amounts to a drop in spending of €1.4 billion compared to 2023.

Michael Herbst, CEO of VENRO, said he finds it worrying that cuts are no longer only being demanded by the far-right populist Alternative for Germany (AfD).

"What is particularly worrying is that more lawmakers are echoing the populist criticism of development policy, which is standard on the far right, and are arguing for drastic cuts," Herbst said.

In the Bundestag this week, Finance Minister Lindner spoke out against further cuts.

"I can certainly hear that the CDU/CSU and the opposition as a whole are calling for cuts to be made to our international engagement," he said. "I advise against this, not just out of humanitarian responsibility, but because international cooperation and crisis prevention are deeply in Germany's interests, such as controlling migration."

This article was originally written in German.

While you're here: Every Tuesday, DW editors round up what is happening in German politics and society. You can sign up here for the weekly email newsletter Berlin Briefing.