Not a good time for the Chancellor Chancellor Olaf Scholz. His attempt to balance the accounts of the state budget, even using methods that are not entirely linear, has not succeeded and now Germany must take action on the 2023 budget, while his coalition is seething, in crucial days for the definition of the maneuver: suddenly in Berlin thepublic accounts emergency.
All possible avenues are being hurriedly sought, trying not to bring down the government. On the one hand we are talking about loosen budget rules super rigid that Germany has imposed on itself. On the other hand we are thinking about immediate freezing of state expenditure.
Germany Budget 2023: the Constitutional Court intervenes
The bubble burst with the pronunciation of Federal Constitutional Court (Bverfg) last week which branded the government's decision to overturn it as unconstitutional 60 billion euros of debt from the Pandemic Fund to the Climate and Transformation Fund (KTF).
The Court said the size of the fund, which in August was increased to 212 billion euros for the period 2024-2027, must now be reduced by 60 billion euros. “This means that the legislature must compensate in some other way,” stressed Doris Koenig, the president of the Court's Second Senate, reading the ruling. “The funds raised must be spent in the year in which they were authorized and the Government cannot circumvent these rules by moving them to an off-budget fund,” she specified.
The repercussions on growth of the country are no small feat. A source at the Economy Ministry, the Green Robert Habek, told Reuters that according to initial estimates the loss of investment funds could reduce growth by about half a point percentage in 2024
Germany Budget 2023: Scholz's proposals and the no's from the Große Koalition parties
Now Schulz, the Minister of Economy Robert Habeck and the head of Finance, the hawk Christian Lindner find themselves having to respond to the contentious red-green-yellow government of those 60 billion, which according to some estimates can reach over 100 billion. The public accounts management manual is of little help in solving the problem: increase taxes? For liberals it is out of the question. Cut public spending? Unthinkable for social democrats and greens.
Germany Budget 2023: the freezing of state spending
To put a dam in place quickly, the German government is also considering the freezing of "almost the entire budget" for 2023. This was reported today by the television broadcaster "Zdf", on the basis of a document drawn up by the Undersecretary for Finance Werner Gatzer.
In the text, the representative of the German Social Democratic Party (SPD) states: "In order to avoid further legacy burdens for future financial years, I intend to block with immediate effect all commitment authorizations foreseen in individual plans 4 to 17 and 23 to 60 of the 2023 federal budget still available”. Gatzer refers to Article 41 of the Budget Ordinance, which regulates the freezing of public spending. The plans mentioned concern "all ministries", with number 60 dedicated to both the climate and transformation fund (Ktf) and the one for the response to the energy crisis, which has a budget of 200 billion euros.
Expand public spending lines? An inconvenient pebble at the EU table
Other roads are currently seen as even more difficult. You could create a new off-budget maxi-fund in the Constitution, like the 100 billion for Defense but the vote in Parliament of the CDU-CSU, in opposition, which however does not want to cooperate, would be needed.
It could be the last resort the enlargement of the very tight limits on public spending that Germany itself has imposed on itself: the suspension of the debt brake declaring a state of emergency for the year that is about to end. Germany had suspended the constitutional rule of the debt brake (which tolerates an almost zero overshoot equal to a deficit of 0,35% of GDP) in 2020 and 2021, precisely, due to the pandemic emergency and then again in 2022 due to the energy crisis.
But this loophole could then have political repercussions at the European table of reform of the Stability and Growth Pact, the one on which Germany had made its powerful no's heard.
Other sectors poised between constitutionality and unconstitutionality
However, the Court's ruling constitutes a precedent in terms of budgetary measures and other sectors could be affected. Poised between constitutionality and unconstitutionality, even the 200 billion of the debt risk running out Economic Stabilization Fund (WSF) born in 2022 (year of suspension of the debt brake due to the emergency energy crisis triggered by Russia's invasion of Ukraine) but then used so far in 2023 for over 30 billion (a normal year for the return of the debt brake) and can also be used in the 2024 budget. The issue is also important in view of the campaign for the next elections scheduled for autumn 2025.
