By Holger Hansen and Maria Martinez
BERLIN (Reuters) -A draft of Germany's next budget would double military aid to Ukraine to 8 billion euros ($8.6 billion) in 2024 while also spending more to make buildings more energy efficient and shield industry from high electricity prices.
Chancellor Olaf Scholz's coalition has readied the draft budget at a time when Europe's biggest economy could be on the brink of another recession: industrial production is falling and interest rates remain at a record high 4%.
The government has nevertheless pitched itself to be the "backbone" of European defence since Russia's invasion of Ukraine in 2022 and pledged to support Kyiv while also bringing its military spending up to the NATO target of 2% of GDP.
Some of the additional spend would be used to replenish the German military's own arsenal, as it has been shipping weapons to Ukraine.
The budget document, seen by Reuters, will be reviewed by parliament this week and passed at the start of December.
The latest budget draft would increase spending by 788 million euros on making buildings more energy efficient and subsidise the cost of replacing older, more polluting heating systems, bringing the total allocation to 19.56 billion euros.
Scholz's coalition had already agreed last week a five-year support package to shield industry from high electricity prices and keep companies internationally competitive after they were hit by an energy crisis in 2022.
The budget earmarks nearly 3.9 billion euros for "subsidies to electricity-intensive companies", almost 1.3 billion euros more than previously estimated. But no new funds are envisaged for Uniper, whose finances have markedly improved after it was bailed out and taken over by the government last year.
Finance Minister Christian Lindner envisages new debt of around 16.6 billion euros, keeping the budget within the constitutionally enshrined debt brake.
"We are complying with the debt brake," he said on Tuesday at the Sueddeutsche Zeitung economic summit. "The constitutional debt brake is also acting as a brake on inflation," he said.
The debt brake rule, included in the German constitution, restricts the German public deficit to 0.35% of GDP.
Lindner wants a "fiscal turnaround" in the budget for 2024, but despite this, he said the draft budget provides for a record investment of 54 billion euros next year. By comparison, the pre-crisis level of investment in 2019 was 37 billion euros, he said.
However, the government faces a major headache as a court is set to rule this week on whether it is allowed to reallocate 60 billion euros left over from emergency funding during the pandemic towards green initiatives.
"We will definitely get clarity," he said about the decision of the court expected on Wednesday. Lindner said that the reallocation was the result of the coalition negotiations at the end of 2021, when he was not yet finance minister.
A negative ruling could throw funding plans into disarray and would test the unity of Scholz's three-way coalition.
($1 = 0.9340 euros)
(Reporting by Holger Hansen and Maria Martinez; Writing by Matthias Williams; editing by Miral Fahmy)
