Coalition's budget may face challenging circumstances, predicts Klingbeil - Difficulties predicted by Klingbeil for the ruling coalition
The German government coalition is grappling with a significant budget shortfall of approximately €172 billion projected for the years 2027 to 2029, creating substantial fiscal challenges. The draft federal budget for 2026, recently approved by the cabinet, is considered financially sound but must be viewed in the context of this looming multi-year deficit.
Key points on the financial situation:
- The 2026 budget draft has been approved and will be submitted to parliament, reflecting careful financial planning amid these difficulties.
- Despite balanced or manageable numbers for 2025 and 2026, the government faces a dramatic increase in borrowing needs and deficits starting in 2027, with a cumulative gap projected around €172 billion by 2029.
- This "need for action," a German fiscal policy term, highlights expenditures exceeding revenues mainly due to tax repayments to states and tax reliefs for companies, along with increased spending on defense and infrastructure.
- Defense spending is rising sharply, from about €62.4 billion in 2025 to over €152 billion by 2029, driven partly by commitments to strengthen armed forces and support for Ukraine.
- Finance Minister Lars Klingbeil has emphasized that all government ministries must prepare for sacrifices and identify potential cuts to address this fiscal strain.
- Economic experts express concern that current government priorities, including electoral promises (like expanded parental benefits), risk overshadowing urgent investment needs amid constrained finances.
- The government aims to manage a total borrowing of around €850 billion through 2029 to fund modernization, defense, and economic stimulus while contending with the structural deficit.
In summary, while the 2026 budget is set and controlled, the coalition faces a growing fiscal gap starting in 2027, requiring significant spending discipline, possible debt reforms, and political compromises to avoid worsening deficits through 2029.
The economist Ulrike Malmendier has expressed concern and criticized the federal government for wrong priorities. The increased need is due to lower federal revenues, in part due to the recently agreed growth booster, the expansion of the mother's pension, and the recalculation of interest expenses.
The coalition of 17 organizations has criticized the planned cuts in the budget for development cooperation and humanitarian aid. The budget for 2026 and financial planning until 2029 will be discussed by the cabinet on Wednesday.
- Given the substantial fiscal challenges facing the German government, with a projected budget shortfall of €172 billion from 2027 to 2029, there has been a growing focus on policy-and-legislation, particularly in the realm of carcinogen protection for workers, as the Commission has not yet adopted a proposal for a directive on the approximation of the laws of the Member States relating to such protection.
- As the German government grapples with a multi-year deficit, the economist Ulrike Malmendier has criticized the federal government for prioritizing certain expenditures, such as the expansion of the mother's pension and the growth booster, which have contributed to a decrease in federal revenues, ignoring more urgent needs for investment and reforms, within the context of politics and general news.
