Germany officially approves substantial new budget with significant debt accrual following prolonged delays
The new German budget for 2025, amounting to €502.5 billion ($595 billion), was passed on Thursday, marking a significant milestone for the country's economic future. The conservative chancellor, Friedrich Merz, who took power following the February elections, has been instrumental in shaping this budget.
The budget's primary focus is on ensuring economic growth and job security, as Finance Minister Lars Klingbeil has emphasised. The plan aims to end Germany's long economic downturn and balance the budget for future years.
However, tensions have arisen between coalition partners regarding budget balancing and potential cuts to the welfare system. The CDU/CSU and the SPD are openly clashing over these proposed cuts.
The budget provides for increased spending on the armed forces and infrastructure. In an effort to supplement regular budget investments, an infrastructure fund was established. However, according to the Institute for Economic Research (IFO), the infrastructure fund is being financed through debt, and the intended supplementary investments are not materialising as planned.
The budget is not without controversy. Critics have noted a lack of spending since the rule change, and the Ifo Institute published an analysis on September 18, 2024, about the government's shift of infrastructure investments from the regular federal budget to a new infrastructure fund. This move, the analysis suggests, has reduced planned investments in broadband expansion and rail infrastructure in the 2025 federal budget.
In response to these concerns, Chancellor Merz amended Germany's debt rules to allow for greater military spending and infrastructure funding. The new borrowing for 2025 is forecast to be €81.8 billion, and the budget for 2025 is €25 billion more than the previous year.
Despite the challenges, the government's priority remains clear: to stimulate economic growth, secure jobs, and invest in the future of Germany. The passage of the 2025 budget is a significant step towards achieving these goals. However, the ongoing debates between coalition partners and the concerns raised by critics will undoubtedly shape the implementation and impact of this budget in the coming year.
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