Germany Agrees On 2025 Budget Amid Fiscal Challenges

Germany’s government has resolved a major fiscal crisis on Friday by agreeing on a budget for 2025. This decision comes after a court ruling in November deemed the reallocation of €60 billion in pandemic loans to the climate fund unconstitutional. This left a €17 billion gap in finances, as the government couldn’t exceed the constitutional debt limit of 0.35% of GDP.

The coalition government, including the Social Democrats, Greens, and Free Democrats, negotiated intensely despite differing views on taxes. They agreed to reinstate the debt limit in 2025, planning spending cuts and savings to manage the reduced budget effectively.

The German government has introduced several key measures to boost revenue and cut spending in its 2025 budget. These include ending diesel subsidies for agriculture, taxing jet fuel on domestic flights, and raising the CO2 levy on fuel and heating. These steps aim to reduce harmful emissions and generate around €3 billion.

Additionally, the climate and transformation fund will see a €12 billion reduction, affecting subsidies for solar power and electric vehicles. Despite these cuts, the government plans to allocate €8 billion to support Ukraine directly next year.

Chancellor Olaf Scholz of Germany emphasized that while the budget requires strict financial discipline, Germany remains committed to climate goals, social fairness, and aiding Ukraine during its conflict.

The new German budget plan includes provisions to manage potential emergencies like worsening conflict in Ukraine, which might require suspending the debt limit again. The coalition aims to calm political tensions and respond to worries about inflation and economic slowdown.

Although approved by the Bundestag, the budget is criticized by opposition parties and business groups. They argue it uses financial tactics and doesn’t tackle future fiscal issues enough.