Why it matters: Restraint on Germany’s green ambitions.
The move, which sets a precedent for Germany’s budgetary maneuvers during a financial crisis, places a constraint on the country’s green ambitions and could increase tensions within the governing coalition.
The Climate Transformation Fund has €212 billion dedicated to projects from 2024 to 2027. The court ruled that it must now be reduced by €60 billion, with the added money coming from unused funds linked to the pandemic.
“If this means that obligations already undertaken can no longer be fulfilled, the budgetary legislator must compensate for this elsewhere,” the court said.
The fund supports a wide range of measures to help Germany reach its goal of net zero greenhouse gas emissions by 2045. Projects include the deployment of heat pumps, incentives for electric vehicles and spending on hydrogen infrastructure.
Robert Habeck, Germany’s economy minister, said all commitments already made under the fund would be honored. But his counterpart at the Finance Ministry, Christian Lindner, said he would withdraw 60 billion euros from the fund and effectively freeze all future pledges until the deficit could be closed.
At the heart of the problem: Germany’s “debt brake”
Germany is the only major industrial economy to have included a debt brake in its Constitution. The law, adopted in 2009, limits annual borrowing to 0.35% of gross domestic product, or around 12 billion euros per year. Exceptions are permitted in cases of emergency, including natural disasters or pandemics.
Borrowing limits have led to increasingly creative and complex measures to cover the country’s spending. Germany’s economy, Europe’s largest, is expected to contract this year and recover only slightly in 2024. The climate fund is part of Mr Scholz’s government’s efforts to revive industry by investing in green technology and renewable energy sources.
“The question remains whether the debt brake makes economic sense as the country grapples with structural stagnation and a long list of serious challenges and transitions, many of which require fiscal support,” said Carsten Brzeski, chief economist at ING Germany.
What happens next: increasingly tense budget negotiations.
This week, German lawmakers are negotiating the 2024 budget and financial plans through 2027, amid tensions over spending cuts, aid to Ukraine and now the ability to finance green projects.
Fiscal policy has been a source of conflict between the three parties in Mr Scholz’s coalition government – the Social Democrats, the Greens and the Free Democrats – who have divergent views on how to negotiate the curb’s restrictions. debt.
