Germany’s coalition government reached an agreement on Friday to address a €17 billion budget gap, paving the way for a draft plan to be submitted to parliament.
The German cabinet had passed its 2025 budget in July after months of negotiations, even though a gap between projected spending and revenue remained to be filled.
At that time, German Finance Minister Christian Lindner indicated that the government was exploring innovative ways to reduce the shortfall to €9 billion.
Options under consideration included using extra funds from the state bank KfW and converting grants for Germany’s national rail operator Deutsche Bahn and the highway company into loans.
The advisory board to the German Finance Ministry had said those three options were problematic, so negotiations had to continue for the coalition parties to find a solution.
However, on Friday, government spokesperson Steffen Hebestreit announced that the coalition had reached an agreement on how to close the €17 billion ($19 billion) budget gap, and it will now submit the draft proposal to parliament.
The budget gap will be narrowed by allocating €14.5 billion in equity to the infrastructure division of Deutsche Bahn, replacing subsidies previously included in the draft budget.
Additionally, Deutsche Bahn will receive a €3 billion loan from the government, which will be used to redeem infrastructure bonds previously issued on the market.
Both the equity injection and the loan will not count towards the debt brake, which limits public borrowing to 0.35% of gross domestic product.
The government will also get €300 million extra from German multinational energy company Uniper SE, as the company will pay €2.9 billion instead of €2.6 billion as it has set aside more funds for the payment obligation to the federal government for aid received in 2022.
At that time, German Finance Minister Christian Lindner indicated that the government was exploring innovative ways to reduce the shortfall to €9 billion.
Options under consideration included using extra funds from the state bank KfW and converting grants for Germany’s national rail operator Deutsche Bahn and the highway company into loans.
The advisory board to the German Finance Ministry had said those three options were problematic, so negotiations had to continue for the coalition parties to find a solution.
However, on Friday, government spokesperson Steffen Hebestreit announced that the coalition had reached an agreement on how to close the €17 billion ($19 billion) budget gap, and it will now submit the draft proposal to parliament.
The budget gap will be narrowed by allocating €14.5 billion in equity to the infrastructure division of Deutsche Bahn, replacing subsidies previously included in the draft budget.
Additionally, Deutsche Bahn will receive a €3 billion loan from the government, which will be used to redeem infrastructure bonds previously issued on the market.
Both the equity injection and the loan will not count towards the debt brake, which limits public borrowing to 0.35% of gross domestic product.
The government will also get €300 million extra from German multinational energy company Uniper SE, as the company will pay €2.9 billion instead of €2.6 billion as it has set aside more funds for the payment obligation to the federal government for aid received in 2022.
Source: Reuters
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