Chancellor Olaf Scholz and his cabinet are contending with the aftermath of this decision that prohibits reallocating pandemic relief funds for different purposes. The verdict by the Federal Constitutional Court questions the legality of several hundred billion euros in special funds.
In response, the Finance Ministry announced a freeze on almost all new spending approvals for 2023, permitting only current liabilities and exceptional new obligations, impacting all federal ministries except for certain key institutions.
The court's ruling has made Berlin's financial strategy uncertain, impacting critical projects like the chip and battery manufacturing subsidies and crucial investments in the national railway network.
Germany's Exceptional Fundings Outstrip Its Standard Annual Financial Plan
Off-Budget Funds |
Climate and Transformation Fund (KTF) - €212 billion |
Energy subsidies (WSF) - €200 billion |
Military upgrade - €100 billion |
Other funds - €357 billion |
Total - €869 billion Germany's federal budget for 2023 - €476 billion *The total of off-budget funds exceeds national budget by €393 billion. |
Source: Federal Audit Court, Germany's Ministry of Finance
The upheaval has been so consequential that senior officials have had to cancel public appearances to address the crisis. Last week’s judicial ruling stated that the €60 billion earmarked for the pandemic response cannot be repurposed for other initiatives, like advancing green manufacturing practices or boosting solar energy production.
Pandemic Funds Untouched, and Its Consequences for Germany
Vice Chancellor of Germany and Federal Minister for Economic Affairs and Climate Action Robert Habeck has indicated that the judgment's impact could extend to other special funds, including those designed to mitigate the effects of high energy prices on households and companies.
Furthermore, Finance Minister Christian Lindner faces the daunting task of incorporating at least €30 billion of new debt into a modified 2023 national budget, per sources familiar with the matter. This requirement could derail his plans to reinstate constitutional rules that limit new borrowing, a cornerstone policy of his business-friendly Free Democratic Party.
Politicians React
The court's verdict has also ignited internal debates within the coalition government, consisting of Scholz’s Social Democrats, the Greens, and the fiscally conservative FDP. During an interview with a media outlet, SPD General Secretary Kevin Kuehnert said that the party is devoted to sourcing the necessary funds to address the €60 billion shortfall created by the court's decision. Emphasizing the importance of funds for Germany’s international competitiveness and climate goals, Kuehnert firmly rejected any proposals for cuts in social benefits.
“That is not what the SPD was elected for in 2021, and we would never support that in parliament,” he said.
Overall Financial Context
Germany's financial framework includes 29 separate funds outside the main budget, amounting to around €870 billion.
Interestingly, the €100 billion fund allocated for military spending is not expected to be affected by the court's ruling, as it is constitutionally protected.
The process of finalizing next year’s federal budget, initially scheduled for completion last week, has been delayed due to the court's decision. Budget lawmakers are now planning to reconvene this week, alongside experts, to deliberate on the next necessary steps.