German cabinet nears approval of 2025 budget amid economic challenges Plans reduced military aid to Ukraine

The German cabinet is set to approve its 2025 budget on July 17 following extensive negotiations, aiming to bridge a 17 billion euro ($18.55 billion) gap between projected spending and revenue amid hopes of a robust economic recovery.

Earlier this year, Germany narrowly avoided recession, but growth has been slower than anticipated, leading to financial challenges akin to those faced by the UK and France.

The 2025 budget includes mid-term financial planning until 2028, coinciding with the depletion of a special fund designated for meeting NATO's minimum spending requirements for the armed forces, Caliber.Az reports via foreign media.

With federal elections looming next year, achieving consensus on the budget and a long-awaited economic stimulus package has been a significant test for the coalition, which has often struggled with internal divisions.

In the June European elections, Germany's ruling parties fared poorly, with the far-right Alternative for Germany coming second behind the conservatives. Chancellor Olaf Scholz declared a "Zeitenwende" (historic turning point) shortly after Russia's 2022 invasion of Ukraine, unveiling a 100 billion euro special fund aimed at modernizing the military and meeting NATO's defence spending benchmark of 2% of GDP.

Looking ahead to 2028, sources from the finance ministry indicate a 39 billion euro shortfall in the regular budget, with 28 billion euros needed to meet NATO targets in the absence of the special fund. There are also financing gaps of 13 billion euros projected for 2026 and 2027.

The draft budget suggests reduced military aid to Ukraine, from around 8 billion euros in 2024 to 4 billion euros in the upcoming year. Additionally, the government plans to pass a supplementary budget for the current year, including 11 billion euros in additional borrowing, totalling 50.3 billion euros in net borrowing.

The process of drafting both the 2025 budget and a medium-term financial roadmap through 2028 was challenging, exacerbated by demands from German Finance Minister Christian Lindner for fiscal consolidation following increased spending during the COVID-19 pandemic and recent energy crises.

Furthermore, new European Union regulations impose tighter fiscal constraints on Germany, necessitating stricter adjustments compared to national regulations. Lindner emphasized the importance of fiscal discipline among member states during a recent meeting of EU finance ministers, stressing the need to sustain public debt sustainability across the bloc.