Germany’s finance minister Lars Klingbeil has warned that a €170bn budget shortfall poses a “massive challenge” to the ruling coalition even as Europe’s largest economy embarks on a debt-funded splurge to bolster its military and modernise its infrastructure.
In March, Germany relaxed its constitutional borrowing limit to enable increased defence spending and to set up a €500bn special fund for its ageing infrastructure — a historic pivot from Berlin’s traditionally conservative fiscal stance. However, the constitutional rule that limits net borrowing to 0.35 per cent of GDP annually continues to apply to other areas of the federal budget.
Presenting next year’s budget on Wednesday, Klingbeil said Berlin must close a budget hole of €170bn by 2029. As the coalition agreed not to increase taxes, this was likely to require deep cuts across ministries and reforms of the welfare system, he added.