Following the decision of the German Constitutional Court regarding the debt brake, the budget crisis of the German coalition government is becoming increasingly dramatic.
In the letter sent to all ministries by Werner Gatzer, undersecretary responsible for the budget at the German Ministry of Finance, it was stated that future spending commitments in the entire federal budget were temporarily frozen.
In the letter, it was stated that the budget freeze, which was initially only valid for the Climate and Transformation Fund, was expanded to cover a large part of the federal budget, and that the existing obligations of ministries and institutions would continue to be fulfilled, but new obligations would not be entered into.
In Gatzer’s letter, it was stated that “it is necessary for the federal budget to review the general budget situation” and emphasized that the expenditures requested by the ministries after the budget is frozen will be allowed in special individual cases.
DECISION OF THE CONSTITUTIONAL COURT
On October 15, the German Constitutional Court ruled that the German coalition government’s decision to transfer 60 billion euros of unused credit from the new type of coronavirus (Covid-19) epidemic to a climate fund was unconstitutional.
The court declared the second additional budget of 2021 unconstitutional and invalid due to violation of exceptions in the country’s debt brake.
With the budget change in 2021, the German government decided to transfer the unused loan of 60 billion euros for Covid-19 epidemic measures to the Climate and Transformation Fund (KTF).
In the court’s decision, it was first stated that the debt ceiling could only be exceeded in case of an emergency, as in the Covid-19 crisis, but the transfer of funds to the climate fund did not meet these conditions.
Due to the emergency situation during the Covid-19 outbreak, the German federal government increased its borrowing by 60 billion euros, but the loan in question was not needed to deal with Covid-19 and its consequences.
The coalition government formed by the Social Democratic Party (SPD), Green Party and Free Democratic Party (FDP) wanted to use the loan in question for the country’s Climate and Transformation Fund.
The decision was expected to affect Germany’s 2024 budget. The decision will now require the government to factor in an additional 60 billion euros and cut spending elsewhere amid disagreement between government partners on tax increases.
Finance Minister Christian Lindner ordered the freezing of the Climate and Transformation Fund budget on November 15, when the decision was announced.