The German Finance Minister, Christian Lindner, announced yesterday a supplementary budget for 2023 that provides legal security for public spending, and that in practice will imply a new suspension of the debt brake included in the Constitution. Background reason: last week the Constitutional Court annulled the reallocation of 60 billion euros of debt contracted – and authorized – to alleviate the impact of Covid in 2021 to a fund for the climate and transformation of 2022.
The high court argued that the coalition government of social democrats, environmentalists and liberals had violated the constitutional rule of debt brakes, a mechanism that can only be suspended “in emergency situations,” by not having justified either the emergency or the time lag.
The debt brake, enshrined in the Constitution since 2009, limits new public debt to 0.35% of annual GDP. It was suspended between 2020 and 2022 due to the coronavirus pandemic, and this year it was back in force.
Although the liberal Lindner yesterday used the expression debt brake only to refer to the ruling of the TC and never to refer to what the Government will do, the consequence is that the brake will be suspended, since the supplementary budget that he will present next Wednesday exceeds 0.35% of GDP debt. Once adopted by the Government, it must be approved by the Bundestag (lower house of Parliament).
A supplementary budget is necessary to “give a constitutionally sound basis” to subsidies for electricity and gas prices, said Lindner, who in his brief appearance in Berlin stressed that the decision had been made in coordination with the chancellor, the Social Democrat Olaf Scholz, and with the Vice Chancellor and Minister of Economy, the Green Robert Habeck.
“My task is now to make a clean slate; we will be able to talk about 2024 when we have a legally secure situation,” said Christian Lindner. Indeed, the Bundestag has postponed the debate on the 2024 budget until the 2023 mess is resolved.
The budget hole of 60,000 million created by the ruling of the TC forced the Executive to freeze the transfer to the climate and transformation fund, and this week it decided to also block the financial stabilization fund – which had been equipped in a similar way – and the budgets for the remainder of 2023.
The mess complicates budget management both at the federal level and in the 16 länder (federated states). The TC acted following a demand from the conservative opposition, but the result affects regional governments led by the Christian Democratic CDU, so its leader, Friedrich Merz, initially very happy about the ruling, is now crestfallen in case the situation detracts from him. decreases popularity. The ruling of the Karslruhe judges – the first that the TC issues on the debt brake mechanism to control the deficit – has been a headache for the Government, which is rapidly reviewing various aspects of its budgetary policy.
