A clear warning to the German government that the fiscal figures of the German economy will soon be out of control is addressed – once again – by the Minister of Finance, Christian Lindner, who calls for an urgent change of course in terms of government policy and the implementation of austerity measures .
Despite these warnings, the row over spending is expected to escalate within the German government in the coming months, with budget deficits expected to be a battleground between the parties in Olaf Scholz’s tripartite governing coalition.
Budget 2025
With negotiations on the 2025 budget already under way, it is clear that much is at stake. However, the picture is further complicated after Germany’s Supreme Court ruled that the government cannot transfer the 60 billion euros earmarked for tackling the coronavirus crisis to other areas of the budget.
The Court ruled that this move was unconstitutional. Since then, the government has been in a state of crisis and has been trying to cut spending from the budget in various sectors, including the agricultural sector that caused the recent mass mobilizations of farmers.
The unfavorable scenario
- “In an adverse scenario, growing financing deficits will lead to an increase in debt relative to economic output to about 345% in the long term,” says the relevant Sustainability report recently published by his office.
- “In a favorable scenario, this percentage will increase to around 140% of gross domestic product by 2070,” the report points out.
Under EU law, Germany has capped its debt levels at 60% of economic output, which requires dramatic spending cuts.
Aging population
But a critical factor is Germany’s rapidly aging population, with a debt boom looming as more citizens head into retirement, while tax revenues shrink and the welfare system swells – in part due to an exploding immigrant population of the country.
Lindner’s partners, the Greens and the Social Democrats (SPD), are strongly opposed to cutting spending further, as they believe it would damage their electoral chances and prospects.
In fact, Labor Minister Hubertus Heil is pushing for a new pension package that will add billions to the nation’s debt, which Lindner notably supports.
