German court says government cannot shift Covid funds to climate projects
Why it matters: Limiting Germany’s green ambitions.
The decision set a precedent for Germany’s budget maneuvers during financial crises, could increase tensions within the governing coalition and limit the country’s green ambitions.
The Climate Transformation Fund has set aside 212 billion euros for projects from 2024 to 2027. The court ruled that it must now be reduced by 60 billion euros, the money added from unused pandemic funds.
“If this means that obligations already entered into can no longer be fulfilled, the budget legislator must compensate this elsewhere,” the court said.
The fund supports a wide range of measures to help Germany achieve its goal of net-zero greenhouse gas emissions by 2045. Projects include the rollout of heat pumps, incentives for electric vehicles and spending on hydrogen infrastructure.
Core of the problem: Germany’s ‘debt brake’
Germany is the only leading industrial economy where a so-called debt brake is included in the constitution. The law, introduced in 2009, limits annual borrowing to 0.35 percent of gross domestic product, which amounts to about €12 billion per year. Exceptions are allowed in emergency situations, including natural disasters or a pandemic.
The borrowing limits have led to increasingly creative and complex steps to meet the country’s expenses.
“Bypassing the debt brake is becoming increasingly absurd,” said Marcel Fratzscher, head of the German Institute for Economic Research, a Berlin-based think tank. “It is out of step with the times because it deprives politicians of the leeway they need to fight crises and make urgent investments in the future,” he added, citing education, climate protection, innovation and infrastructure as examples.
What happens next: increasingly fraught 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 Scholz’s coalition government – his Social Democrats, the Greens and the Free Democrats – who have different views on how to negotiate the debt brake restrictions.