Germany’s budget crisis deepened after the Finance Ministry imposed an emergency spending freeze in response to a ruling last week by the country’s Constitutional Court, Bloomberg reported.
Chancellor Olaf Scholz’s governing coalition is racing against time to clarify the implications of a Constitutional Court ruling that calls into question hundreds of billions of euros of funding in special funds that are not part of the regular federal budget.
On Monday, Berlin’s finance ministry froze almost all new spending authorizations for this year as it tries to identify the broader and longer-term implications, government officials said.
Existing commitments will be met, but new commitments can only be unblocked in exceptional cases, they added. The decision applies to all federal ministries, with the exception of only constitutional bodies, including both houses of parliament and the Constitutional Court.
Judges ruled last week that the redirection of 60 billion euros of aid earmarked for the 2021 COVID-19 pandemic could not be transferred to a fund for initiatives related to the fight against climate change, such as solar energy production.
The court ruling is likely to affect other similar special funds, including one that pays for measures to ease the burden on households and companies from high energy prices, according to Economy Minister Robert Habek.
If officials conclude that the decision applies more broadly, as expected, Finance Minister Christian Lindner will have to retroactively account for at least 30 billion euros of new debt in a revised federal budget for 2023, they told Bloomberg familiar sources.
As a result, he will be forced to abandon his plan to restore constitutional rules limiting new borrowing, known as the debt brake – a key policy of his pro-business Free Democratic Party.
Germany has 29 such extra-budgetary funds worth about 870 billion euros, which could be affected by the court’s decision. However, this amount includes 100 billion euros earmarked for the modernization of the German army, which was written into the constitution last year and is unlikely to be at risk.
Budget lawmakers are due to finalize next year’s federal budget this week and are meeting with experts to discuss the court ruling later on Tuesday in Berlin