Why Germany fails to square the 60 billion euro circle – POLITICO

BERLIN — As Germany’s divided coalition government struggles to plug a 60 billion euro hole in the federal budget following an explosive ruling by the country’s highest court, new financial problems could loom.

A Constitutional Court ruling last week is already forcing German leaders to reassess how to finance subsidies for energy, industry and microchips, potentially undermining ambitious plans to revive the country’s stagnant economy. Germany and accelerate the green transition.

The court ruled unconstitutional the government’s plan to reuse the remaining 60 billion euros from a COVID-19 emergency fund to finance the country’s green agenda.

But the financial woes could deepen as the decision could end up having much broader implications that would limit the ability of German leaders – both at the federal and state level – to tap into a variety of special funds created to lower energy prices. and finance investments in clean energy.

The government’s latest spending plan which has come under scrutiny due to last week’s decision is a 200 billion euro energy price brake for consumers and small businesses, which has been put put in place last year after Russia cut off gas supplies to Germany, sparking controversy at EU level. This energy subsidy was financed by a special “economic stabilization” fund.

Only part of the stabilization fund has been used so far. But the problem for the coalition is that around 10 billion euros of the fund was earmarked to finance the next energy subsidies until the end of March. These planned expenditures are now in doubt.

As a result, “citizens will be faced with an increase in the prices of electricity and perhaps gas,” warned the Minister of the Economy, Robert Habeck, on Monday in an interview on public radio. funds that have been put in place.

MPs on the Bundestag budget committee will hold a public hearing with legal experts on Tuesday to assess the damage, but the opposition is already threatening action. Friedrich Merz, leader of the center-right Christian Democratic Union (CDU) – the party that launched the lawsuit that led to last week’s court ruling – said he was now considering filing a lawsuit. another legal action to challenge the 200 billion euro fund.

“All special funds are currently being analyzed and revised,” government spokesperson Steffen Hebestreit said on Monday.

Getting around the debt brake

Last week’s decision underscored the extent to which Chancellor Olaf Scholz’s three-party ruling coalition has come to rely on special funds to circumvent the debt brake enshrined in the country’s constitution, which limits the deficit federal at 0.35 percent of GDP, except in emergencies.

To finance a large part of its climate and industrial program, the coalition government relies on a Climate and Transformation Fund which is mainly financed by revenues from the sale of carbon emission certificates. In order to strengthen this fund, the government attempted to reallocate 60 billion euros of remaining loans from a COVID emergency fund.

Now that the nation’s highest court has ruled this reallocation of funds unconstitutional, Scholz’s coalition is scrambling to find alternative funding options. But there is no sign that a deal is within reach, as there are few acceptable options that would satisfy three ruling parties with disparate policy agendas.

A tax increase is unlikely as Finance Minister Christian Lindner and his conservative Free Democratic Party (FDP), which governs with Scholz’s center-left Social Democrats and Habeck’s Greens, are pushing for it. oppose.

On Monday, FDP leader Christian Dürr suggested that Germany could cut its social spending. But this proposal is not well received by many Social Democrats and Greens.

“Where do you want to reduce social benefits by 60 billion euros?” Habeck told public radio. Such a proposal “does not take into account the dramatic nature of the situation,” he added.

One possibility, considered unlikely, would be for the government to declare a state of emergency in order to suspend the debt brake for the coming year, as it did during the pandemic and at the start of the Russia’s large-scale invasion of Ukraine. But such a move would likely lead to more lawsuits.

A slightly more likely possibility is that the government will push to reform the debt brake to give more financial room to maneuver.

After all, Habeck used alarming language to describe the economic consequences of high energy costs, warning that the consequences for Germany’s green transition and overall economic development are vast.

“The industrial exodus is detrimental to our country and our society,” warned the minister in an interview published on Sunday in the Frankfurter Allgemeine Sonntagszeitung.

Problems with the use of special funds are not limited to the federal government.

The states of Berlin, Bremen, North Rhine-Westphalia, Saarland and Schleswig-Holstein have all used special funds outside their regular budget to finance new infrastructure investments or subsidies for the green transition. If these special funds were to be declared illegal, the financial difficulties of the states could worsen the problems of the ruling coalition.

What are the issues ?

Several subsidy programs financed by the Climate and Transition Fund are already under threat.

This includes a new measure to reduce electricity costs for energy-intensive industries, which was agreed this month after several months of infighting within the ruling coalition over the measure.

Likewise, funding for billions in subsidies promised earlier this year to chipmakers Intel and TSMC to build new factories in East Germany is now in question.

The same uncertainty applies to subsidies given to German industry to support costly transitions to renewable energy like hydrogen. Only a few companies in the steel sector, such as Thyssen-Krupp and Salzgitter, have already received guarantees from the government to support climate-neutral production.

Moreover, it is unclear how Scholz’s coalition will finance the urgent modernization of Germany’s overburdened rail network, which was supposed to be partly financed by the climate fund.

There is not much optimism that these funds will continue to provide the government with additional financial breathing room in the future.

Alexander Thiele, a constitutional lawyer who represented the government before the Constitutional Court last week, told a panel discussion on Friday that there was indeed good reason to believe the ruling meant that special funds at the federal level and states would be illegal. .

However, it seems that not everyone got the message.

Just Monday, the municipality of Berlin announced that it wanted to invest in a magnetic levitation high-speed train project. Under the proposal, the city would invest in a multi-kilometer urban test track.

It would cost around 80 million euros, according to estimates, a considerable sum for a city in debt. The solution, according to local leaders?

The money would come from a special fund.