German economy could shrink by 0.5% in 2024, Ministry of Finance "releases" plan related to public debt

On December 16, German Finance Minister Christian Lindner announced plans to reform the country's public debt regulations to boost public spending during the economic recession.

Germany announces plans to reform its public debt. (Source: Getty Images)

Minister Lindner said he planned to revise an economic calculation component to quantify how much new borrowing the government is allowed to do each year under Germany's "debt brake" rules.

The reforms, he said, would be implemented next year, giving the government more flexibility in spending in 2024 - a year the German Economic Institute predicts will see another recession.

However, the German Finance Minister, a member of the Free Democratic Party (FDP), stressed that he did not agree with further changes to the "debt brake" regulations, including a proposal to exempt spending restrictions on investments in climate protection.

Meanwhile, the FDP's coalition partners, Chancellor Olaf Scholz's Social Democrats and Economy Minister Robert Habeck's Greens, have called for stronger debt regulation reforms.

The "debt brake" provision, enshrined in the German Constitution, which keeps the federal deficit at 0.35% of gross domestic product (GDP), except in emergencies, has become a major political issue in Germany's month-long budget crisis.

Under the budget deal, the government agreed to maintain the "debt brake" rule in 2024, after temporarily suspending it only this year and previous years due to the conflict between Russia and Ukraine, the energy crisis and the Covid-19 pandemic.

The German Economic Institute (IW) released a report showing that Europe's largest economy could shrink by 0.5% in 2024 due to the instability caused by the recent government budget crisis.

(according to DW, VNA)

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