Dhe Federal Constitutional Court’s ruling on the 2021 supplementary budget has far-reaching consequences for financial policy in Germany, according to Ifo President Clemens Fuest. “There will be significant restrictions on federal budgets in the coming years when it comes to spending on government support for decarbonization,” Fuest said on Wednesday. One option is to declare an emergency again for 2023 or 2024, not to comply with the debt brake requirements for normal times and to increase new debt. “After this ruling, it is questionable whether that would be compatible with the Basic Law,” said Fuest.
The emergency situation would have to be presented as a result of the Russian attack on Ukraine, but this attack was more than a year and a half ago, explained the top economist. “Alternatively, the federal government only has the option of cutting and reallocating spending or increasing taxes.” However, at least the FDP has ruled out tax increases in this legislative period. “Beyond the current consequences for the federal budget, the ruling signals that financial policy maneuvers to circumvent the debt brake will be critically observed and severely restricted by the Federal Constitutional Court,” added Fuest.
DIW President Marcel Fratzscher sees the ruling as an impetus for reforming the debt brake. “The attempts by federal governments over the past twelve years to circumvent the debt brake have become increasingly absurd,” said Fratzscher. “The debt brake is no longer appropriate because it deprives politicians of the necessary leeway to combat crises and make investments for the future.” It is now more urgent than ever for the federal government to launch an investment offensive for future investments – in education, climate protection, innovation and infrastructure .
“It would be a slap in the face for future generations”
Economist Jens Südekum sees difficult times ahead for the traffic light coalition. “This presents the federal government with the biggest economic policy problem of this legislative period,” said the professor of international economics at the Institute for Competition Economics at the Heinrich Heine University in Düsseldorf about the verdict. The 60 billion euros are fully planned for the coming years, for funding measures in the area of building renovation and heating replacement, for reductions in electricity prices and for subsidies. “All of this is now up for grabs.” In the short term, the federal government could fall back on other reserves that are still in the Climate and Transformation Fund (KTF). “But this is just an emergency operation and won’t last long.”
“The reserve will be empty by next year at the latest and the fundamental question arises as to how the federal government wants to finance its planned climate policy,” said Südekum. This is a mammoth task and there is no easy solution in sight. However, there should not be massive cuts in the area of climate policy now. “That would be a slap in the face to future generations and to the entire business location, which has set out on the path towards transformation and also trusted in the KTF.”
With its ruling, the Federal Constitutional Court overturned the traffic light government’s controversial supplementary budget from the end of 2021 as unconstitutional. According to this, 60 billion euros in loans that were not needed to deal with the Corona crisis could not be reallocated and moved to the climate fund. The traffic light’s actions are void, particularly because of a violation of the debt brake.
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