Germany to stick to debt brake in $518 billion budget draft for 2024

By Holger Hansen

BERLIN (Reuters) -Germany is able to stick to its self-imposed 2024 debt brake in a 476.8 billion euros ($517.8 billion) proposal drawn up by the parliamentary budget committee on Thursday, according to the draft seen by Reuters and people familiar with the matter.

Under the proposal, which concludes months of tense negotiation over Germany’s 2024 spending, Europe’s top economy can issue 39 billion euros in new debt, which would be within the government’s limit.

The committee agreed on the proposal in deliberations that ended on Thursday, three people familiar with the matter said. Germany’s lower house is scheduled to approve the 2024 budget on Feb. 2.

The debt brake, enshrined in the German constitution, restricts the public deficit to 0.35% of gross domestic product.

The government in 2023 decided to suspend the cap on borrowing after a Constitutional Court ruling blocked the repurposing of unused pandemic emergency funds.

Chancellor Olaf Scholz’s three-party coalition announced an agreement on key points of the 2024 draft budget in December following weeks of talks, after the court ruling threw the government’s finances into disarray. Some changes to the agreement have been made since then.

Green Party politician Sven-Christian Kindler earlier said Germany need not suspend its brake on debt issuance in 2024 to finance rebuilding after major floods in western Germany in 2021.

Finance Minister Christian Lindner welcomed the draft that effectively rules out an exception to the country’s debt brake, which became a major sticking point among the coalition partners.

“I can currently not imagine anything that would justify that,” he told Reuters in an interview on Thursday on the sidelines of the World Economic Forum in Davos.

On Tuesday, provisional budget accounts for last year published by the finance ministry showed Germany had 6.3 billion euros more than expected to help finance this year’s budget.

Some of that money can go into a special fund, created in 2021 following floods in the Ahr Valley, that has been earmarked 2.7 billion euros this year.

($1 = 0.9208 euros)

(Reporting by Holger Hansen; Additional reporting by Maria Martinez and Victoria Waldersee; Writing by Christoph Steitz; Editing by Chris Reese, Leslie Adler and Richard Chang)