Germany eyes EU extension to rein in spending as recession bites

BRUSSELS ― Germany is considering asking the European Commission for an extension to rein in public spending over the coming years, two German officials told POLITICO.

For years, Germany’s position as Europe’s industrial powerhouse shielded its economy, allowing it to emerge as the champion of fiscal discipline in the bloc. But this week, the strain of a deeper-than-expected recession forced Berlin to miss its Oct. 15 deadline to submit a multiyear spending plan to the European Commission.

Berlin’s liberal Finance Minister Christian Lindner could now find his own room for maneuver cramped by the very numerical criteria he himself insisted upon in redesigning the EU’s fiscal rules last year.

As part of the revamped framework, countries exceeding key debt limits have four years to get back in line before they face disciplinary measures. Those requiring a longer adjustment period, however, are entitled to request an extension of up to seven years if necessary.

So far, only Italy, Spain and Finland have applied for a seven-year extension.

“The possibility of extending the adjustment period from four to seven years is currently being discussed,” said a German finance ministry official.

As of April when the rules were implemented, Brussels requires countries with relatively low debts such as Germany to cut the ratio between public debt and growth by an average of at least 0.5 percent per year.

Meeting this requirement in only four years would require a major fiscal adjustment from Germany’s fractious and unpopular government, led by the center left.

A seven-year adjustment plan, however, spares it from having to impose overly onerous spending cuts ahead of national elections slated for September 2025.

“The permitted expenditure growth would be correspondingly higher [in a seven-year timeframe] than in the case of the four-year adjustment period,” said the finance ministry official.

But the Commission will not automatically grant Germany an extension.

Berlin must first commit to carrying out reforms and investments favored by Brussels in exchange for more gradual spending cuts.

Giovanna Faggionato contributed to this report.