German Finance Ministry Faces Budget Shortfall Challenges

The advisory board to the German Finance Ministry has expressed concerns about the three options under consideration to address a budget shortfall of 17 billion euros. The options include using funds from state bank KfW and converting grants to loans for Deutsche Bahn and the highway company. The board believes these could risk violating the constitutional debt brake.

The advisory board to the German Finance Ministry sees the three options under consideration to reduce a 17 billion euro ($18 billion) budget shortfall as problematic, according to a letter seen by Reuters on Thursday. After months of political wrangling, the German cabinet passed its 2025 budget in July. German Finance Minister Christian Lindner told a news conference that the government was exploring innovative ways to reduce the shortfall.

The options under scrutiny include utilizing extra funds from state bank KfW, as well as converting the grants of Germany's national rail operator Deutsche Bahn and the country's highway company into loans. However, the advisory board expressed doubts about these options, suggesting they could jeopardize the constitutionally enshrined debt brake.

While presenting the budget, Lindner mentioned that the constitutionality of these options was being studied. The government aims to prevent a recurrence of November 2023's chaos when a court ruling created a 60-billion-euro hole in public finances, throwing the financing framework into turmoil. Negotiations on the financing of the 2025 federal budget must continue within the German coalition.

Finance ministry sources stated that suspending the debt brake, which limits public borrowing to 0.35% of gross domestic product, is not feasible "constitutionally or economically." ($1 = 0.9270 euros)

(With inputs from agencies.)