Germany may have to limit borrowing due to EU rules, Lindner says

By Maria Martinez

Germany may have to make further savings in its 2025 budget to comply with EU rules, despite room for borrowing allowed under Germany's own balanced budget law known as the debt brake, Finance Minister Christian Lindner said on Wednesday.

"We comply with the debt brake but, due to European [fiscal]rules, we may have to save additional money," Lindner said in Berlin, in response to whether he would use all the borrowing room offered by the debt brake.

The debt brake restricts Germany's budget deficit to 0.35% of gross domestic product. Germany could raise an additional 5.2 billion euros ($5.69 billion) more debt while complying with it, for a total of 56.5 billion euros, due to the government's weaker economic forecasts.

But European rules also impose limits on a country's overall debt-to-GDP ratio, and require a plan to bring this within targets.

"The European rules do not allow Germany to have higher expenditures than the debt brake," Lindner said. "We would have to break European law for more spending."

Lindner said that discussions in Germany about a reform of the debt brake do not take European law into account.

To comply with European fiscal rules, more ambitious financial and economic policies are needed to reduce the ratio of debt to GDP. The possibility of extending the adjustment period from four to seven years is currently being discussed within the government and with the European Commission.

"Whether a country decides for the four-year path or the seven-year path with an ambitious reform programme must be negotiated with the commission," Lindner said, noting that both options would be compliant with EU fiscal rules.