The 2024 budget was delayed after Germany’s constitutional court in November blew a €60 billion hole into the country’s finances, forcing the ruling coalition of Social Democrats (SPD), Free Democrats (FDP) and Greens to cut spending, triggering infighting among parties.
The debt brake, combined with the court’s ruling in November — which restricted use of the emergency, pandemic-related funds set up to circumvent the debt brake — leaves Germany’s government with little financial wiggle room.
Many in Germany are now calling for reform of the debt brake. Earlier this week, the German Council of Economic Experts, an advisory body, criticized it as restricting “fiscal space for future-oriented” spending.
The hurdle for pushing through reforms of the debt brake, however, is high — it requires a two-thirds parliamentary majority to amend the constitution. Moreover, there are doubts the coalition government can agree on reforms. Members of the SPD and Greens are in favor, while the fiscally conservative FDP insists on upholding current rules.
This year’s budget, however, includes a fallback clause that allows a potential debt brake suspension for 2024 — should the war in Ukraine escalate or allies like the United States reduce their support for Ukraine, which could prompt Germany to increase its share.
The ruling coalition agreed to maintain key financing for the green transition and subsidies to attract investments into future technologies like batteries and microchips.
It did, however, move to phase out tax breaks for farmers despite a wave of farmer protests in Germany.
Further infighting within the coalition government is likely over the coming months as the debate on next year’s budget begins. One estimate already puts the financial gap at €40 billion.
