Germany’s budget crisis deepened when the Finance Ministry imposed an emergency spending freeze in response to last week’s ruling by the country’s top court.
Chancellor Olaf Scholz’s governing coalition has been pitched into crisis mode as it rushes to work out the implications of the Constitutional Court judgment, which calls into question hundreds of billions of euros of financing in special funds that are not part of the regular federal budget.
The Finance Ministry in Berlin on Monday froze virtually all new spending authorizations for this year as it tries to identify the broader and longer-term implications, according to government officials, who asked not to be identified in line with briefing rules.
Existing liabilities will be honored but new commitments can be unblocked only in exceptional cases, they added. The decision applies to all federal ministries, with only constitutional bodies like the two houses of parliament and the Constitutional Court exempted.
Judges ruled Wednesday that unused debt authorizations earmarked for tackling the pandemic can’t be transfered into a fund for initiatives like greening manufacturing and expanding solar power.
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The judgment is likely to affect other such special funds, including one that pay for measures to ease the burden on households and companies from high energy prices, according to Economy Minister Robert Habeck.
If officials conclude that the judgment applies more broadly, as expected, Finance Minister Christian Lindner will have to retroactively account for at least €30 billion of new debt in a revised 2023 federal budget, people familiar with the discussions told Bloomberg on Monday.
As a result, he would be forced to drop his plan to restore constitutional rules limiting new borrowing known as the debt brake, a key policy of his pro-business Free Democratic party.
Germany has 29 such off-budget funds worth around €870 billion, though a €100 billion pot for military spending is not expected to be affected as it’s written into the constitution.
Budget lawmakers are due to finalize next year’s federal budget this week and are meeting with experts to discuss the court ruling later on Tuesday in Berlin.
--With assistance from Michael Nienaber.
(Updates with additional information starting in first paragraph)
