Germany will reintroduce its so-called debt brake in 2023 after being suspended for three years to deal with the impact of the coronavirus pandemic, finance ministry sources said on Wednesday.
The government plans to borrow €17.2 billion next year and is abiding by the constitutional rule that normally limits Germany’s government deficit to 0.35 percent of annual gross output, despite new spending following the Russian war in Ukraine, sources said said.
New borrowing, envisaged in a draft budget due to be presented to the cabinet on Friday, is nearly €10 billion above a figure for 2023 announced in April.
However, “despite significantly increased costs, the debt brake will be observed,” said one of the sources.
After taking on almost 140 billion euros in new debt in 2022, next year Germany will benefit from the absence of many spending related to the coronavirus pandemic as well as higher tax revenues, the sources added.
Although Germany has traditionally been a frugal nation, at the start of the coronavirus pandemic the government flouted its own debt rules and provided huge financial aid to steer the economy through the crisis.
The government this year unveiled a multi-billion euro aid package to help companies in Europe’s largest economy weather the aftermath of the Ukraine war and sanctions against Russia.
Berlin has also spent billions diversifying its energy supply to reduce its dependence on Russia, as well as investing heavily in plans to combat climate change and boost digital technologies.
– ‘Wrong instrument’ –
The commitment to return to the debt brake from 2023 was a key point of the coalition agreement that the SPD, Greens and FDP signed at the end of 2021 to form a government.
The policy was a central demand of today’s Finance Minister of the FDP, Christian Lindner.
But in the past few weeks, the pressure for a longer suspension of the rule has increased – also from the coalition government.
“We have to talk about the debt brake,” demanded SPD co-chair Saskia Esken last week and called for the regulation to be lifted by 2023.
“Austerity measures are the wrong tool in times of crisis,” says Sven-Christian Kindler of the Green Party, who sits on the Bundestag’s Budget Committee.
However, Lindner emphasized in an interview with ZDF this week that “the return to the debt brake is non-negotiable”.
The minister referred to rising interest rates in Europe, which are expected to cost Germany an additional 12 billion euros in 2023.
Discussions on the draft budget in Parliament, which are due to start in September, are likely to be heated.
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