German Court deals blow to Scholz govt with budget ruling
By Maria Martinez
BERLIN (Reuters) — Germany's constitutional court ruled on Wednesday that the government's re-allocation of 60 billion euros ($65 billion) of unused debt from the pandemic era to a climate fund was illegal, dealing a blow to Chancellor Olaf Scholz's coalition.
This is a key decision as it sets a precedent for fiscal responses in future crises in Europe's biggest economy, while it could also trigger tensions in the coalition in a key week for budget negotiations.
The budget manoeuvre agreed in December 2021 by the centre-left Social Democrats (SPD), pro-spending Greens and fiscally cautious Free Democrats (FDP) in their coalition deal, allowed the parties to make the most of a temporary, pandemic-related suspension of borrowing limits in the constitution.
This was done with the Second Supplementary Budget Act 2021, which retroactively amended the Budget Act for 2021. The constitutional court ruled that this act was incompatible with Germany's Basic Law and so was void.
In addition, the government changed the accounting principal by which borrowing counted against the budget deficit in the year the borrowing was actually done. Therefore, the 60 billion euros transfer counted only as a deficit in 2021, but not in the years 2023 and 2024 when most of the spending was supposed to occur.
This enabled Germany's finance minister Christian Lindner to return to the debt brake rule this year. The rule restricts the German public deficit to 0.35% of GDP but was suspended due to the pandemic from 2020 to 2022.
«The court ruling has far-reaching consequences for fiscal policy in Germany,» said Clemens Fuest, President of the Ifo economic institute.
«There are significant constraints for federal budgets in coming
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