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German budget plan disregards EU recommendations

by AI | 28.Nov 2024 | Europe in brief AI

Germany has presented a budget for 2025 that contradicts the EU Commission’s recommendations on debt rules – even though the country has always advocated for strict EU debt rules.

ARCHIVE - 18.12.2012, Hamburg: ILLUSTRATION - The outlines of Europe can be seen under blacklight on a Euro banknote. Photo: Daniel Reinhardt/dpa

Strasbourg – The budget plan submitted by the outgoing German government in Brussels for the coming year violates the recommendations of the EU Commission to comply with European debt rules. The projected net expenditures are likely to exceed the relevant upper limits, the EU Commission announced. A penalty procedure is threatened in the event of a breach of the EU debt rules.

The draft federal budget for 2025 has so far only been approved by the cabinet in Berlin – with existing billion-euro gaps. The end of the coalition of SPD, Greens, and FDP also prevented the necessary approval by the Bundestag. It is now expected that the 2025 budget will not be approved until spring or summer by the new federal government. After a fierce dispute over the budget, Federal Chancellor Olaf Scholz (SPD) dismissed Finance Minister Christian Lindner (FDP) earlier this month.

Mid-term financial plan from Berlin still missing

In addition to the euro area countries’ budget plans for the coming year, the European Commission also assessed the mid-term budget plans that all EU member countries are required to submit. To ensure sound finances according to European debt rules, each country must prepare such a four-year budget plan together with the EU Commission. This should have been submitted by mid-October. 

However, Germany has not yet done so – like five other countries, according to the EU Commission. After the government break, Germany is still in contact with the Brussels authority, it was said. EU Commission Vice President Valdis Dombrovskis said the Commission expects Germany to present its mid-term financial framework planning after the new elections in February.

In mid-October, the federal government also indicated that it needed more time to adjust expenditures due to the poor economic situation. Instead of a four-year plan, the Federal Republic could set up a seven-year plan for the budget – this is permitted under certain conditions. 

Debt rules apply to all EU countries

The European debt rules, also known as the Stability and Growth Pact, apply to all EU member countries. Among other things, the rules stipulate that the debt level of a member state must not exceed 60 percent of the economic output. At the same time, the national budget deficit must be kept below three percent of the gross domestic product (GDP). Those who exceed the limits risk a penalty procedure.

The Stability and Growth Pact was reformed in the spring. Former Federal Finance Minister Lindner, in particular, campaigned for strict rules. (December 26)