A ruling by the highest German court has left the Scholz government with a budget deficit of 60 billion euros. On Wednesday, the Constitutional Court in Karlsruhe ruled that a budget trick devised by the coalition of SPD, Greens and FDP is illegal. Due to the judgment and the resulting gap of 60 billion, not only Finance Minister Christian Lindner (FDP) has a problem, but the entire coalition comes under pressure.
A decision by the Merkel government in the spring of 2021 is the basis for the current problem. In the middle of the corona pandemic, it was decided to release an additional 60 billion euros to combat the crisis. In German budgetary policy, this is not a decision to be taken lightly, as the government must adhere to the Schuldenbremse, the legally established limit on the budget deficit. However, in the course of 2021, Covid lost its grip on the world, and the 60 billion euros turned out to be unnecessary for the crisis response. Under the newly elected Chancellor Olaf Scholz (SPD), the coalition decided that the 60 billion euros could be transferred to a new ‘Climate and Transition Fund’ (KTF). This also satisfied Scholz’s two coalition partners, because for the FDP led by Christian Lindner, the Schuldenbremse is a sacred place, while the Greens want to invest in the energy transition. With the idea for the fund, Lindner’s budget apparently remained in balance, and the Greens were able to make investments from the corona pot at the same time.
But this shifting of money for one crisis to a fund for another crisis is not allowed, according to the Court in Karlsruhe. It is legally established that in cases of emergency, the Schuldenbremse may be deviated from and additional money may be invested. But appropriations that are taken in one year cannot simply be rolled over, because that would make the budget in Berlin even less transparent than it already is.
Climate crisis
Moreover, the exception rule on the Schuldenbremse was devised for acute and unforeseeable crises, and that is only partly the climate crisis. The latter argument is not a sign that the Court’s judges do not take the climate crisis seriously: in 2021, the Court ruled that Germany is obliged to quickly take clear measures to mitigate the crisis, in order to guarantee a certain freedom for younger generations.
In this case, the judgment from Karlsruhe has astonishing power. “The judgment results,” according to the judgment itself, ‘that the size of the KTF is reduced by EUR 60 billion’. The fund had a total of approximately 100 billion. Opposition party CDU/CSU had complained about the government’s trick. Helge Braun, CDU member and former right-hand man of Angela Merkel, said he was satisfied with the judgment, which means that future generations will not be saddled with the debts of the current ones.
The question now is what burdens the coming generations will be saddled with. In light of the climate crisis, more and more economists and politicians believe that Germany’s obsession with a balanced budget is outdated. The director of the German Institute of Economic Science (DIW) Marcel Fratzscher said on the political channel Phoenix that Germany needs to invest urgently. “We need an investment offensive to prepare Germany for the future and to remain an industrial country. You can’t avoid debt now.”
In addition to sustainability, investments must also be made in defense and digitalization, according to Fratzscher.
The chairman of the SPD Lars Klingbeil also sees it that way, and on Wednesday he argued for higher taxes to close the gap. The Greens also believe that significant investments are indispensable. Economy Minister Robert Habeck (Greens) even called the KTF, even before Wednesday’s statement, a pillar in the attempt to stabilize the German economy. In contrast, the two most important political articles of faith of Finance Minister Christian Lindner (FDP) appear to be adhering to the Schuldenbremse and a veto against tax increases.
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