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(Reuters) – Germany sees itself as Europe’s champion of sound finances, with its debt brake restricting the public deficit to 0. 35% of GDP, but the euro zone’s largest economy relies on an extrabudgetary budget to meet the debt ceiling and finance its fiscal needs. . .
Germany’s Constitutional Court ruled on Wednesday that the coalition government’s decision to reallocate 60 billion euros of unused pandemic-era debt to its climate and transformation fund is unconstitutional, a blow that could endanger other countries outside budget funds.
Germany currently has 29 special budgets at the federal level, with a total volume of 869 billion euros ($941 billion), according to the independent auditor Bundesrechnungshof.
Below we present five key special budgets for the German economy, which represent more than a part of the total volume:
CLIMATE AND TRANSFORMATION FUND
The Climate and Transformation fund has a total of 177 billion euros from 2023 to 2026 for green projects and for industry.
The ruling by the German Constitutional Court leaves the fund with a deficit of 60 billion euros that had been set aside for projects such as the energy power of buildings, the subsidy of renewable electricity and the production of chips, as well as support for energy-intensive companies.
ECONOMIC STABILIZATION FUND
The ESF may be the next fund to face a legal challenge. It was created in 2020 with the aim of supporting businesses during the coronavirus pandemic, but has focused on the energy crisis since last year.
Friedrich Merz, whose main opposition party, the Christian Democratic Union, has effectively sued the government over the climate fund, said his party is contemplating taking further legal action against the ESF.
Fears about another special budget are exaggerated for Commerzbank’s leading economist Jörg Kraemer, but he sees “considerable risks” for this specific fund.
FEDERAL ARMED FORCES FUND
The Russian attack on Ukraine marked a “turning point” in European security policy and Germany has introduced a one-off special fund for the armed forces of €100 billion.
German Finance Minister Christian Lindner defends the fund as the way to meet the 2% defense spending target for NATO members, as a “bridge” until that spending can be financed from the federal budget.
This fund is achieved through a separate constitutional exemption from the debt brake, making it immune from the repercussions of the court decision.
However, the Armed Forces Fund faces another challenge. It will run out until 2027 and it is unclear how the government will meet NATO’s commitment at that point.
EUROPEAN RECOVERY PROGRAMME FUNDS
The oldest special fund, created in 1948 on the basis of the Marshall Plan to promote the reconstruction of the German economy after World War II.
In 2023, it delivered around €943 million to small and medium-sized enterprises, in the form of comfortable loans and equity.
FUND FOR THE FUTURE
Germany has a start-up landscape, but its venture capital market is too small, either compared to abroad or relative to the country’s economic strength.
The government has taken note of this. The long-term fund was introduced in 2021 with €10 billion for start-ups going through a capital-intensive scal-up phase.
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(Reporting by Leslie Adler)