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Budget Talks Collapse

Talks have collapsed between the German government’s coalition parties over how to spend a €6.2-billion budget surplus from last year, Handelsblatt has learned from several coalition representatives.

The failure to reach a deal means the surplus will flow into a reserve fund for refugees, as had been set in a previous law governing the 2016 budget. That reserve fund now amounts to €18.9 billion.

Sources said a serious feud has broken out between Angela Merkel’s Christian Democrats and its junior coalition partner, the Social Democrats, over what to do with the 2016 surplus. Finance Minister Wolfgang Schäuble, a member of Ms. Merkel’s CDU, has called for the funds to be used to pay down Germany’s debt, while the SPD wants to fund new investments.

SPD coalition members accused their coalition partners of being “unwilling to talk.” Ms. Merkel’s CDU accused the other side of simply wanting to meet its own election promises ahead of federal elections set for September.

Germany has been posting a surplus since 2014, but balancing the budget – required by a debt brake law in Germany – will get harder in the coming years.

Given the disagreements in the coalition, there is talk of using the money to plug a hole in the government’s 2018 budget plans instead. A draft of that budget has exposed a €8.3-billion gap that Mr. Schäuble is determined to fill. In addition, Handelsblatt has learned that a technical adjustment to bond issuances in 2016, known in financial lingo as “Disagio,” means the government effectively took in €6.03 billion too much in debt, which will have to be repaid to investors in coming years.

Sven-Christian Kindler, a lawmaker from the Green Party, warned that Mr. Schäuble’s balanced budget was increasingly under threat. “Pushing the debts to future years needs to be laid out in a transparent manner,” he told Handelsblatt.

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