Germany freezes part of budget following legal battle

The German government has frozen future spending commitments for almost the entire remainder of its 2023 budget, a finance ministry official said on Tuesday, after a court ruling left a gaping hole in the country’s finances.

The Constitutional Court ruled last week that Prime Minister Olaf Scholz’s coalition government breached debt rules when it transferred 60 billion euros ($65 billion) of loan authorizations earmarked for pandemic aid to the climate fund.

The move upended the government’s spending plans and the finance ministry of Europe’s largest economy immediately suspended most of the fund’s projects from 2024.

But now the so-called “commitment authorization” for 2023 has also been suspended, a Treasury official said. These are commitments in the current budget that will lead to spending in later financial years.

“Existing debt will continue to be fulfilled, but there is no possibility of new debt being incurred,” the person said.

It added that permits could still be granted in “exceptional cases”.

Der Spiegel cited a senior official’s letter sent to all ministries and the Prime Minister’s Office, saying the freeze was applied with “immediate effect” and affected the budgets of all ministries.

Government spokesperson Steffen Hebestreit told a regular press conference in Berlin on Monday that the coalition government was reviewing the impact of the ruling to determine the size of the hole in the budget.

The climate fund, which was worth 212 billion euros before the ruling, was aimed at accelerating Germany’s transition to a zero-emissions economy.

But the cash was also earmarked for other purposes as Europe seeks to reduce its dependence on chip imports from Asia.

The Congressional Budget Committee was scheduled to rubber-stamp the 2024 federal budget during a special session Thursday. But that may be in doubt following last week’s court ruling.

In a judgment, a court in Karlsruhe, southwestern Germany, ruled that the government’s measures violated the so-called “debt brake” that limits new borrowing in the German budget.

The brake was suspended from 2020 to 2022 due to the pandemic and energy crisis, but it came back into effect this year.

The ruling also further heightened tensions between Scholz’s uneasy coalition government, particularly the pro-market FDP, which is the main supporter of debt rules, and two other parties that advocate reform of debt rules.


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