German government to keep debt brake in 2024 budget

By Maria Martinez and Andreas Rinke

BERLIN (Reuters) -Germany plans to return to a limit on new net borrowing in 2024, Chancellor Olaf Scholz said on Wednesday after coalition parties reached a budget deal following a month of fractious negotiations after a court ruling threw its plans into disarray.

Scholz said the so-called “debt brake” could be suspended again if Ukraine, fighting a Russian invasion, needs more funding than the 8 billion euros earmarked in the budget.

“The government is sticking to its goals,” the Social Democrats (SPD) chancellor told a press conference with Finance Minister Christian Lindner of the Free Democrats (FDP) and Economy Minister Robert Habeck of the Greens.

Announcing 17 billion euros in cuts to the 2024 budget, he said the Nov. 15 constitutional court ruling meant the government had to achieve its goals with less money.

“We will do this by abolishing climate-damaging subsidies, slightly reducing the expenditure of individual departments and reducing federal subsidies,” Scholz said.

He said a climate and transformation fund, designed to help companies in Europe’s largest economy as they transition towards greener practices would be reduced by 12 billion euros in 2024 and by 45 billion euros in the financial planning up to 2027.

The fund, which supports initiatives such as making buildings more energy-efficient and subsidising renewable electricity and chip production, will still have a total volume of 160 billion euros, Scholz said.

That should provide some reassurance for businesses after major green spending pledges were frozen by the government when its move to reallocate 60 billion euros of unused pandemic debt to a climate and transformation fund was ruled unconstitutional.

Scholz said support for Ukraine would continue, after the budget crisis raised questions about how much military aid Berlin was willing to commit.

Scholz’s government has pledged to double support for Kyiv to 8 billion euros next year compared to the current year. There will be 6 billion euros additionally for Ukrainian refugees.

Reinstating the debt brake for 2024 is a victory for Lindner who had insisted upon it during weeks of budget negotiations. The court ruling had forced the government to suspend the rule for another year in 2023, after the emergencies of COVID and the energy crisis that followed Russia’s invasion of Ukraine.

The constitutionally enshrined rule restricts debt-wary Germany’s public deficit to 0.35% of gross domestic product.

Scholz and Habeck had sought another suspension in 2024 – the fifth in a row – to avoid spending cuts that could affect welfare benefits and investment in the green transition.

($1 = 0.9276 euros)

(Reporting by Andreas Rinke and Maria Martinez, Writing by Kirsti Knolle, Sarah Marsh and Maria Martinez, Editing by Catherine Evans)