Relief, restrained optimism, but also a heavy burden that the German government will have to cope with for 2025 by observing the strict constitutional rule of the debt brake that limits permanent public borrowing in Germany. Also known as the “golden rule” of balanced budgets, which had been suspended in previous years, it is the red line for Liberal Finance Minister Christian Lindner and his continued stay in the coalition government.

After overnight negotiations the three government partners Social Democrats, Greens and Liberals reached a necessary agreement on the draft budget for 2025 with 44 billion in new loans while meeting the NATO target of 2% of GDP for defense spending.

Investment support package mainly in infrastructure

According to Chancellor Olaf Scholz in a press conference he gave with Minister of Finance Christian Lindner and Minister of Economy Robert Hambeck, Germany must become a “pillar of stability” in the center of Europe, at a time when developments, as he said, in neighboring countries cause concern .

The aim is to increase investment with a new support package for the German economy and targeted investments in what he described as dilapidated German infrastructure, roads and railways, digitization and green industry.

The German chancellor also underlined that in 2025 the government’s main social goals will be met, such as investments in affordable social housing and the increase in child benefits.

However, the Ministry of Defense will receive approximately 52 billion euros in the new year, with an increase in its budget of only one billion euros for 2025 and not six, as the Ministry of Defense had initially requested. The chancellor clarified that funds for the upgrade of the German armed forces will be made available in phases until 2028.

Difficult fiscal autumn

However, it remains to be seen whether, despite this, these goals will not change after the summer break, because today only a few key points of the new budget were presented schematically, with more concrete decisions expected on July 17. After the summer break of parliamentary work, the draft budget is expected to take the difficult path of parliamentary processing in committees and the Plenary, which will also have the final say.

However, there are quite a few MPs who do not rule out until the last moment, i.e. the expiration of the year, even the declaration of a fiscal emergency, in the event that emergency needs arise, mainly with an eye on continued aid to Ukraine “for as long as necessary”, according to the Solz saying. Still fresh are the images and discussions from the fiscal shock just before 2024, with the Karlsruhe Constitutional Court ruling on “hidden funds” and fiscal holes that had to be filled at the last minute.

For his part, however, the German chancellor, answering journalists’ questions, wanted to emphasize that today’s agreement is proof of the will of the three partners to move forward together towards 2025, a year of federal elections with critical stakes anyway.