“People’s baths” come first, even in Germany. In the first ten days of July, while the intra-governmental fights between Social Democrats (SPD), Greens and Liberals (FDP) for the drawing up of a new budget had reached their peak and many saw a government crisis, a last-minute agreement was reached. An agreement that combines targeted austerity measures with new borrowing at the limits of what is constitutionally tolerated (i.e. around 50 billion euros), but also billions in tax breaks, but without revising the increased spending on defense, infrastructure modernization and growth stimulation.

In other words, “co-government” insists on squaring the fiscal cycle, without revealing where the extra funds will be found. The noticeable increase in tax revenues, expected in 2025 to approach one trillion euros (compared to 964 billion this year), may cause a sense of optimism. However, the Institute of German Economics (IW) estimates that this increase does not compensate for the even greater increase in government spending. For one more year, social benefits constitute the largest part of expenses (176 billion in absolute size, i.e. 35% of the budget), while interest expenses also reach the not inconsiderable percentage of 21%.

New “fund reallocations”

The protagonists of the joint government had agreed that definitive solutions would be sought from September. We said, “the people’s bathrooms” come first. But here we are at the beginning of August and already the finance minister and president of the Liberals, Christian Lindner, foresees a new fiscal gap of five billion euros, which forces a “renegotiation” of the July agreement. Is he speaking more as the finance minister or more as the chairman of the Liberals?

Probably with both properties. As president of the Liberals he likes to play the role of guarantor of fiscal discipline, cutting government spending while ensuring room for tax breaks and other “developmental incentives”. As a minister, he has already tarnished his resume with the judgment of the Supreme Constitutional Court, which had ruled unconstitutional the rearrangement of funds amounting to 60 billion – from combating the consequences of the pandemic to digitization and climate protection – in the supplementary budget of 2021.

Since then, Lindner has faced critical and even derisive comments from the opposition, which accuses him of being the first finance minister to see his first budget shot down in the Constitutional Court. He himself wants to avoid at all costs the… “double sin”. But that is exactly the danger he faces. Because the most controversial element in the draft budget of 2025 is the reallocation of funds amounting to 4.9 billion euros of the development bank KfW, which had not been absorbed in previous years. That amount doesn’t even include some other, equally controversial funds that were originally earmarked to fund the energy cap and are now being diverted to other uses for 2025.

And a new public debt record

Thus Lindner separates his position, shaking the “people’s bathrooms”, as well as the chancellor’s. Already the opposition Christian Social Union (CSU) of Bavaria is calling on Social Democrat Chancellor Olaf Solz to “interrupt his leave” to reason with his government partners, as anything else “shows a lack of respect for voters”.

On top of that, Germany is now recording a new public debt record. According to the latest official figures that were finally confirmed last week and cover the period until the end of 2023, public debt (including social security bodies and Local Government) now stands at €2,445.1 billion. In other words, each German bears an individual debt of 28,943 euros. See you in September…