German Government Reaches Agreement to Lower Deficit Target Following 2025 Budget Controversy, Reports Reuters

By Maria Martinez

BERLIN – Germany’s coalition government announced on Friday that it has come to an agreement to reduce its budget deficit target for 2025 from 17 billion euros to 12 billion euros. This compromise aims to preserve the spending plan after initial proposals failed to materialize.

In July, the cabinet approved the 2025 budget following extensive negotiations but left unresolved how to close the gap between expected spending and revenue. Finance Minister Christian Lindner previously expressed a desire to reduce the shortfall to 9 billion euros.

"It would be better if it was in single-digit figures," he commented on the newly set target of 12 billion euros. "This is somewhat higher than I would wish for as finance minister."

The agreement sets the stage for a draft budget to be presented to parliament, with the aim of securing legislative approval by the year’s end.

As part of the deal, Deutsche Bahn’s infrastructure division will receive 4.5 billion euros in equity, replacing previous subsidies proposed in an earlier draft of the budget. Additionally, the government will provide a loan of 3 billion euros to Deutsche Bahn, which can be used to repay infrastructure bonds previously issued.

"Compared to the July decision, we have chosen to invest more in transport infrastructure through additional capital and loans for Deutsche Bahn, while also implementing further savings," Chancellor Olaf Scholz stated regarding the agreement.

The 2025 draft budget includes a total of 15.1 billion euros earmarked for rail infrastructure investments. Notably, the equity infusion and loan will not count against the debt brake, which restricts public borrowing to 0.35% of the gross domestic product.

"The debt brake is therefore respected, and all measures we have introduced, such as loans and equity for the railway, are designed in compliance with the constitution," Lindner assured.

The government carefully examined various options for narrowing the budget gap to avoid a repeat of a court ruling in November 2023, which created a 60 billion-euro deficit in public finances. Earlier options considered included converting grants for Deutsche Bahn and the highway company into loans, as well as leveraging additional funds from the state bank KfW. However, the Finance Ministry’s advisory board deemed those options problematic, prompting the search for alternative solutions.

In an additional boost, the government will receive an extra 300 million euros from energy utility Uniper. The company will pay 2.9 billion euros rather than 2.6 billion due to having set aside more funds for obligations related to federal aid received in 2022.

Other budget adjustments include a 200-million-euro decrease in anticipated tax revenue losses from the EU’s energy crisis fund.

"The budget legislators can now proceed with deliberations for next year’s budget in a timely manner after the parliamentary summer break," Scholz remarked.

The Bundestag is scheduled to begin discussions on the budget plan in the second week of September, with the Budget Committee set to conduct a final review on November 14. The budget is expected to be approved by both chambers of parliament before the end of the year.

Lindner expressed optimism on Friday, suggesting that the projected budget gap could be further reduced by November.