In recent conversations, it has become clear how challenging it is to articulate to citizens the need for substantial future investments while also making significant cuts to the core budget. Both actions are crucial. We must modernize the state and manage ongoing expenses.
Most new investments planned for next year will be drawn from special funds, not Germany’s regular budget, with €49 billion from an infrastructure and climate fund, according to Klingbeil. This fund was established as part of a historic package of constitutional spending reforms passed by the German parliament in March, which included modifying Germany’s debt brake to enable significant defense spending.
However, these spending reforms did not entirely remove Germany’s debt brake, which limits the federal government’s structural deficit to 0.35% of GDP, leaving regular budgetary spending under strict fiscal constraints.
Chancellor Friedrich Merz’s government faces difficult spending choices in the coming months to control regular spending amid Germany’s struggling economy. GDP fell 0.3% in the second quarter compared to the previous quarter, nullifying a first-quarter gain, with GDP up only 0.2% year-on-year.
In his Bundestag speech, Klingbeil noted the German government had resorted to significant borrowing in recent years to address the Covid-19 pandemic, strengthen defenses following Russia’s invasion of Ukraine, and manage the energy shock caused by the war.
“The funds that were necessary and beneficial to society must be repaid eventually,” Klingbeil stated. “For years, that moment seemed distant, but it begins now.”
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