Why it matters: A limitation on Germany’s green ambitions.
The decision set a precedent for Germany’s fiscal maneuvers during financial crises, could raise tensions within the ruling coalition and imposes a constraint on the country’s green ambitions.
The Climate Transformation Fund has €212 billion dedicated to projects from 2024 to 2027. The court ruled that the added money from unused pandemic funds must now be reduced by €60 billion.
“If this means that the obligations already assumed can no longer be fulfilled, the budget legislator must compensate for this elsewhere,” the court stated.
The fund supports a wide range of measures to help Germany reach its goal of net zero greenhouse gas emissions by 2045. Projects include the deployment of heat pumps, incentives for electric vehicles and spending on hydrogen infrastructure.
The heart of the matter: Germany’s ‘debt brake’
Germany is the only leading industrial economy that has a so-called debt brake written into its constitution. The law, enacted in 2009, restricts annual borrowing to 0.35 percent of gross domestic product, representing approximately 12 billion euros a year. Exceptions are allowed in emergencies, including natural disasters or a pandemic.
Debt limits have led to increasingly creative and complex measures to cover the country’s expenses.
“Bypassing the debt brake is increasingly absurd,” said Marcel Fratzscher, director of the German Institute for Economic Research, a Berlin-based think tank. “It is not keeping up with the times because it deprives politicians of the room for maneuver they need to combat crises and make urgent investments in the future,” he added, citing education, climate protection, innovation and infrastructures.
What happens next: Increasingly tense 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), which have different views on how to negotiate the debt brake restrictions.
