German government slammed over debt-budget

Henry

In a sensational decision, the German Constitutional Court determined that the government’s budget is illegal and contrary to the constitution. This is the biggest possible humiliation that a government can get from the court.

The case was brought by the largest opposition party, the Christian Democratic Union (CDU). The specific point of contention was the misappropriation of funds incurred with debt for combating the Covid-19 pandemic and which, because they were not fully used, were moved to the climate fund of the Department of Economy and Climate.

To understand what happened, the lead-up and background is necessary.

Already in 2009, when the government of Angela Merkel’s CDU and Free Democratic Party of Germany (FDP) was still in charge, Germany had the so-called “Debt brakes” (public debt) incorporated into the constitution, which strongly curbs the debt on the budget to force the government to stay within its budget and not take on excessive debt.

This is a sensible arrangement and important for economic and fiscal stability. When the Covid-19 pandemic hit the world in 2020 and was (as we now know, too wrongly) considered the greatest threat since the Second World War, the debt default due to the supposed national emergency was set aside once and for all – all of this to incur large debts in order to be able to pay all the costs related to Covid-19, including subsidies for struggling businesses.

However, when it appeared towards the end of 2021 that the pandemic was on its way out and was not as bad as expected, there was still 60 billion euros left in the emergency fund. The new government led by Olaf Scholtz and the Social Democrats (SPD), with the Greens and Free Democrats (FDP) as coalition partners, have written the fight against climate change on their banners and decided to pay the enormous costs for, among other things, the construction of alternative energy sources , to finance the energy-efficient conversion of businesses and homes from the emergency fund – still with government debt.

The reasoning was that climate change is just as big a threat as the Covid-19 pandemic and it therefore justifies extraordinary expenditure regardless of the debt default. At the time, many experts warned against such a step, but especially the Greens and their Minister of Economy and Climate, Robert Habeck, held firm that it not only helps to break the global temperature rise, but also a kind of green economic boom would be caused by all the government money that is now being invested in the green transformation of the economy.

The Supreme Court has now given the green dreamers a loud wake-up call. It is certain that blame for one state of emergency (Covid-19) cannot be good-naturedly used for another. Whether climate change qualifies as a national emergency comparable to a pandemic or natural disaster has also been questioned. Furthermore, funds earmarked for one specific budget year cannot simply be transferred to the next budget year.

The climate fund is now suddenly without the necessary money for all the projects that have already been launched. No one knows where the money will come from now. Both tax increases with already some of the highest taxes in the world, as well as savings in other places do not seem to be an option. However, this is not only embarrassing for Habeck and the Greens and Scholtz, but especially also for the finance minister, Christian Lindner (FDP) – he always advocates for fiscal discipline, but approved the misuse of these funds himself.

This comes at a time when the popularity of the German government is already at its lowest point and the three coalition partners regularly fight with each other. Other major crises, such as the uncontrolled influx of migrants, also put the government under pressure and there is no consensus on the right approach to this issue. A breakup of the coalition is even now possible.