Germany aims to return to debt brake as part of 2024 budget deal

By Maria Martinez

BERLIN (Reuters) – German Chancellor Olaf Scholz’s three-way coalition has agreed a budget for next year, after a month of wrangling following a constitutional court ruling that upended the government’s financial plans.

In plugging a 17 billion euro ($18.33 billion) funding gap, the government plans to cut spending in some areas and also to return to a limit on new net borrowing in 2024 – at least initially.

Below are some reactions to the 2024 draft budget:

CHAIRPERSON OF GERMANY’S COUNCIL OF ECONOMIC EXPERTS MONIKA SCHNITZER

“It makes sense to keep the justification of an emergency situation open for specific spending requirements such as aid for the flood disaster in the Ahr valley and for aid to Ukraine. It is perhaps not surprising that the coalition partners could not agree to declare another emergency situation for 2024. There would certainly be reasons for this. The fear of a new constitutional review was probably too great. It is tricky if the 2024 budget can be balanced primarily by using up the last of the reserves. This means that the financing situation for 2025 will be even more problematic than for 2024.”

COMMERZBANK CHIEF ECONOMIST JOERG KRAEMER

“It is good that the German government is trying not to suspend the debt brake in the coming year. Otherwise, the resolutions represent a typical compromise. Each of the three parties involved has made concessions so that the federal government can close the gap in the budget in the end. The consolidation corresponds to just under one percent of gross domestic product. This could potentially dampen economic growth by up to half a percentage point in the coming year. However, the fact that central banks in all Western countries have had to raise their key interest rates sharply in the fight against high inflation will have a much greater impact on the economy. We continue to expect (German) gross domestic product to fall by 0.3% in the coming year.”

CARSTEN BRZESKI, GLOBAL HEAD OF MACRO AT ING

“All in all, the announced measures seem to be manageable for the economy. However, the ongoing controversy¬†of how to combine large-scale investments with balanced budgets will not end after today’s announcement. In fact, with fiscal policy turning restrictive and still a high degree of policy uncertainty, the risk is high that the German economy will remain in a minor recession next year.”

IFO PRESIDENT CLEMENS FUEST

“The budget agreement is a step in the right direction, but questions remain unanswered. It is to be welcomed that the federal government has not taken the easy route of declaring a budget emergency, but has cut spending, especially subsidies, and increased environmental taxes such as the CO2 price somewhat more. This will maintain incentives for climate protection.”

($1 = 0.9274 euros)

(Compiled by Berlin bureau, Editing by Rachel More)

tagreuters.com2023binary_LYNXMPEJBC0I2-VIEWIMAGE