Finance & Economics

German Budget Crisis Worsens

The German leadership decided on an emergency spending freeze against the background of the decision of the country’s top court, which aggravated the already existing budget crisis, which became a kind of shock factor for Europe’s largest economy.

German Budget Crisis Worsens

The government of Chancellor Olaf Scholz is making efforts to cope with the consequences of the ruling of the Constitutional Court, which last week banned the transfer of unused debt obligations for €60 billion intended to combat the coronavirus pandemic to funds for the implementation of projects related to the greening of production and the expansion of solar energy. This decree also paralyzed the possibility of using hundreds of billions of euros of funding from special funds that are not part of the regular federal budget.

On Monday, November 20, the German Finance Ministry froze almost all new spending permits for 2023, explaining this decision by trying to determine broader and longer-term consequences. The agency said that existing obligations will be fulfilled, but new ones can be unblocked only in exceptional cases. This decision applies to all federal ministries but does not concern the two houses of the German Parliament and the Constitutional Court.

The court decree, which became known last week, called into question all of Berlin’s financial plans. In this case, many projects, including those related to the production of chips and investment in the development of the railway network, were under attack, which in the appropriate context is a symbolic concept, but still has material consequences.

The media reports that high-ranking German officials even canceled some of their public appearances to form a new position on activities under the influence of the shocking court decision.

German Economy Minister Robert Habeck said that the court ruling will affect many special funds, including those that ease the financial burden on households and companies against the background of high energy costs.

The media, citing insiders, reported that if officials conclude that the court’s decision has a wide-ranging impact, at least €30 billion of new debt will have to be taken into account in the revised federal budget.

Kevin Kuehnert, the SPD’s general secretary, said that the party plans to find funds to plug the €60 billion hole the court ruling created. He also stated that this money is crucial from the point of view of Germany’s international competitiveness. The SPD Secretary-General also noted that the party would not agree to cuts in areas such as social benefits.

Currently, there are 29 extra-budgetary funds in Germany totaling about €870 billion.

The media reports that the court’s decision will not affect Berlin’s military spending, amounting to €100 billion. In this case, the financing is guaranteed by the relevant constitutional norms.

Lawmakers were supposed to finalize Germany’s federal budget for 2024 last week. The final agreement on this issue was postponed due to the court’s decision.

The leader of the parliamentary group of Social Democrats, Rolf Mützenich, said that some current processes taking place in the world lead to emergency situations that are beyond the control of the state and are a factor of significant influence on the financial situation of the country. He called on all government partners to declare an emergency in the Bundestag for 2024, which will allow to receive a special loan and create a new fund.

Some media outlets claim that the tripartite coalition government is not moving in one direction within the framework of the current situation.

As we have reported earlier, Germany Plans to Dole Out €20 Billion to Bolster Semiconductor Manufacturing.

Serhii Mikhailov

2273 Posts 0 Comments

Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.