Germany will suspend the ‘debt brake’ in 2023

9 months ago 35

Germany will suspend its constitutional ‘debt brake’ in 2023 by declaring a state of emergency, Finance Minister Christian Lindner (FDP/Renew) announced on Thursday, following a Constitutional Court ruling that questioned the legality of Germany’s €200 billion ‘energy shield’ to stabilise energy prices.

The ruling declared the transfer of unused debt from 2021 into a climate fund unconstitutional, arguing that debt justified with an emergency in one year cannot be used for spending in subsequent years. It, therefore, also affects the €200 billion “energy shield” set up in 2022, parts of which were used to stabilise energy prices in 2023.

“In consultation with the chancellor and the vice-chancellor, I will present a supplementary budget for this year next week,” Lindner said on Thursday afternoon.

“We will now put expenditure, particularly for the electricity and gas price brakes, on a constitutionally secure footing,” he added.

To do so, the government will propose parliament to declare an emergency situation for 2023, which allows additional debt beyond the constitutional “debt brake”, Lindner wrote on X. “No new debt is being taken on, only the funds already used to overcome the crisis are being placed on a secure legal basis,” he added.

The “debt brake”, set in Germany’s Constitution since 2009, normally limits the allowed new debt to 0.35% of GDP per year, plus additional spending in times of economic downturn. It can be suspended, however, in times of an emergency, as was done during the COVID-19 pandemic in 2020 and 2021 and due to the war in Ukraine in 2022.

While the suspension of the debt brake for 2023 should secure the legality of the energy aid measures taken this year, it remains unclear whether it also resolves the question of how to replace the €60 billion cut from the “Climate and Transformation Fund”, which were meant to be spent between 2024 and 2027.

“We can only talk about the year 2024 and the next few years once we have a legally secure, constitutionally secure situation,” Lindner said on Thursday.

On Wednesday, the parliamentary group leaders of Germany’s three-party government coalition had declared to delay the final negotiations on the 2024 budget, following a moratorium on new payment obligations for the coming years issued by Lindner on Monday evening.

Economists and industry representatives warned against cutting investments from the climate fund, which includes financing several “Common Projects of Common European Interest” (IPCEI) and subsidies for two Chip factories announced as part of the European Chips Act.

“These are not feel-good projects, but are actually the key decisions here in our country to ensure that industry is preserved and that the climate targets are achieved,” Bernhard Osburg, CEO of ThyssenKrupp Steel and head of the German steel industry association, told journalists on Thursday.

Asked whether a cut in funding following the court ruling could affect the EU’s climate agenda, a Commission spokesperson told Euractiv, “As you well know, the Commission does not comment on speculations”.

(Jonathan Packroff | Euractiv.de)