Chancellor Olaf Scholz backed plans to revive Germany’s tradition of tight government spending, despite mounting demands to modernize Europe’s largest economy.
Scholz’s ruling coalition approved a 2024 finance plan earlier this month that slashes net new borrowing to the lowest levels since before the pandemic. The fiscal consolidation is aimed at returning to a constitutional debt limit after suspending it for three years.
“We are back on track on the budget,” Scholz said on Friday in Berlin during his summer press conference.
Germany faces a series of challenges. Its energy system is ill-suited to support manufacturers with sufficient affordable clean energy, while an aging workforce creates demands for social spending even as companies face a growing labor shortage. There are also demands to invest in physical and digital infrastructure to keep pace with other developed economies.
Scholz has been under pressure to deliver on pledges to tackle a new era in terms of foreign policy in light of Russia’s war against Ukraine, while domestic issues like a controversial home-heating reform have triggered public feuds in his coalition and frustrated voters.
Next year’s budget squeezes spending across all government departments except for defense.
During the wide-ranging press conference that touched on topics including the rise of far-right Alternative for Germany and the country’s support for Ukraine, the chancellor vowed to continue to meet NATO targets for spending 2% of gross domestic product on defense. However, he didn’t say how that would be financed once the €100 billion ($112 billion) special defense budget will be used up in 2027.
--With assistance from James Regan and Kamil Kowalcze.
