Germany’s Constitutional Court ruled on Wednesday that a ruling to redirect 60 billion euros ($65 billion) of unused pandemic-era debt to a climate fund is unconstitutional.
In December 2021, Germany’s coalition government agreed to a fiscal maneuver: €60 billion ($64 billion) of unused loans guaranteed to help combat the effects of the pandemic were reallocated to its so-called Climate and Transformation Fund (KTF).
The KTF is a special fund, independent of the general state budget, which finances weather coverage measures. These include the advancement of green technologies, the renovation of old homes, and oil and fuel heating systems.
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The reallocation of debt from its original pandemic target to the KTF was made imaginable by a temporary suspension of pandemic-related borrowing limits in the constitution. The so-called debt relief limits Germany’s public deficit to 0. 35% of GDP, but this was suspended due to the pandemic from 2020 to 2022.
A total of 197 opposition Conservative MPs argued that the resolution gave the government a fiscal area to which it had no constitutional right. They said it could set a precedent for Germany to finance long-term crises.
“If the coalition were allowed to continue this practice, the Finance Minister could, in the long run, collect unlimited debts in one crisis year, but then use this money for completely different purposes and for an unlimited period of time in the other years,” said Mathias Middelberg of the CDU/CSU parliamentary group.
Germany’s Federal Finance Office also called the budget maneuver “constitutionally dubious,” saying the government did not provide a good enough justification for the “diversion” of cash meant to combat the pandemic. It suggests that weather coverage policies should be constitutionally financed from the general state budget.
The Constitutional Court agreed with these arguments.
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Government Budget Secretary Werner Gatzer said the reallocation of pandemic credits did not constitute a diversion and that investments in weather coverage could simply serve as a catalyst for Germany’s post-pandemic economic recovery.
He justified the retrospective reallocation of appropriations by stating that, without it, the release of funds could have been delayed by several months.
However, the Constitutional Court disagreed.
The Constitutional Court’s ruling in this case may have a significant effect on how the governments of the German Länder finance their reaction to long-term crises.
“Germany’s Constitutional Court can simply take into account a landmark ruling that affects the government’s fiscal area and in long-term crises,” Christian Schulz, deputy lead economist for Europe at Citi, told Reuters news agency.
With the government’s fiscal maneuver declared unconstitutional, the KTF is now missing €60 billion, which will have to be discovered elsewhere.
Last June, Robert Habeck, Vice Chancellor and Minister for Economic Affairs and Climate Action, said such a move would deal a severe blow to the German economy, “pulling the rug out from under which we are trying to stabilize the German economy. “”.
Katja Mast of the centre-left Social Democratic Party (SPD), the largest party in the ruling coalition, said the government’s budget plans for 2024 would be approved despite the court ruling.
“We are prepared for all scenarios,” he said. As things stand, we will adopt the budget on 1 December. The [Constitutional Court’s] ruling will not meet the coalition’s climate targets. “
He said the administration would now review the court’s ruling and would be open to a debate on curbing the federal debt.
mf/rc (Reuters, AFP)
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