Germany's New Finance Chief Highlights Need for Belt Tightening – Financial Post

Germany’s new finance minister said the government will still need to identify budget savings even though it can tap into a giant new infrastructure fund and effectively spend as much as it wants on the armed forces.
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(Bloomberg) — Germany’s new finance minister said the government will still need to identify budget savings even though it can tap into a giant new infrastructure fund and effectively spend as much as it wants on the armed forces.
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Lars Klingbeil, who took office last week, told lawmakers in Berlin Wednesday that while there’s “new scope for maneuver” on infrastructure and defense, the ruling coalition under Chancellor Friedrich Merz “will also have to push ahead with budget consolidation” in other areas.
“My goal is to get Germany back on a growth path, to invest in the modernization and future viability of our country and to ensure security,” Klingbeil said during government questions in the Bundestag.
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“New growth and sound budgeting belong together for me,” added the Social Democrat. His goal is to transform his department into an “investment ministry” to oversee “the biggest modernization of our country in decades,” he said.
The 47-year-old Klingbeil, who is also conservative leader Merz’s vice chancellor, is set for a busy first few months in office.
He’s planning to present a revised budget for this year for cabinet approval in the final week of June so it can have a first reading in parliament at the start of July. The draft 2026 budget will follow soon after that.
He’s also aiming to shepherd through parliament changes to the constitution agreed by the ruling alliance that will lead to a loosening of the rules that limit federal government borrowing.
Before they took office, Merz’s CDU/CSU bloc and the SPD enlisted the Greens to secure parliamentary backing for a debt-financed infrastructure fund worth 500 billion ($562 billion). They also effectively exempted defense spending from the borrowing restrictions, known as the debt brake.
Klingbeil told lawmakers Wednesday that the infrastructure fund will be used for investment in schools, highways, railways, climate-friendly energy, housing, and fast internet.
The need for belt-tightening he highlighted is partly due to weaker than expected tax revenues.
Updated estimates he’s due to present on Thursday will show that tax income will be significantly lower than forecast due to persistently weak economic growth, according to a report in Handelsblatt newspaper published Tuesday.
Europe’s biggest economy has shrunk the past two years and will likely stagnate this year due to uncertainty triggered by US President Donald Trump’s trade conflict, as well as tepid demand for German exports and diminishing competitiveness.
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