German Budget Plan Overlooks EU Recommendations

Strasbourg – The budget plan presented by the outgoing German government in Brussels for the upcoming year is in violation of the EU Commission's recommendations regarding European debt regulations. The anticipated net expenditures are projected to surpass the established upper limits, as stated by the EU Commission. A penalty procedure may be initiated if the EU debt rules are breached.

The draft federal budget for 2025 has received cabinet approval in Berlin but still contains significant billion-euro deficits. The collapse of the coalition between the SPD, Greens, and FDP has hindered the necessary endorsement from the Bundestag. The approval of the 2025 budget by the new federal government is now expected to be delayed until spring or summer. This follows a contentious budgetary debate that led Federal Chancellor Olaf Scholz (SPD) to dismiss Finance Minister Christian Lindner (FDP) earlier this month.

Mid-term Financial Plan from Berlin Still Pending

In assessing the budget plans for the upcoming year from eurozone countries, the European Commission has also evaluated the mid-term budget proposals that all EU member states are obligated to submit. To maintain sound finances in accordance with European debt regulations, each country is required to develop a four-year budget plan in conjunction with the EU Commission. This submission was due by mid-October.

However, Germany, along with five other countries, has yet to provide this plan, according to the EU Commission. Following the government transition, Germany remains in discussions with the Brussels authority. EU Commission Vice President Valdis Dombrovskis indicated that Germany is expected to unveil its mid-term financial framework after the new elections scheduled for February.

In mid-October, the federal government also communicated that it required additional time to adjust its expenditures due to a deteriorating economic outlook. Instead of a traditional four-year plan, Germany may opt for a seven-year budget framework, which is allowed under certain conditions.

Debt Rules Apply to All EU Countries

The European debt regulations, often referred to as the Stability and Growth Pact, are applicable to all EU member states. These rules dictate, among other things, that a member nation’s debt must not exceed 60 percent of its economic output, and the national budget deficit must remain below three percent of gross domestic product (GDP). Countries that exceed these thresholds face the risk of penalty measures.

The Stability and Growth Pact was reformed in the spring, with former Federal Finance Minister Lindner notably advocating for stricter compliance.