German Chancellor Olaf Scholz (C), German Economy and Climate Minister Robert Habeck (L) and German Finance Minister Christian Lindner (R) attend a news conference after the weekly cabinet meeting of the German government at the Chancellery, in Berlin, Germany, 15 November 2023. EPA-EFE/HANNIBAL HANSCHKE


German government on the ropes after devastating budget ruling

Berlin faces a hole in the budget of up to 60 billion euros and potentially a total stop of the so-called "energiewende", the ongoing transition by Germany to a low carbon, environmentally sound, reliable, and affordable energy supply


Germany’s top court has blown a major hole in the federal government’s budget plans by ruling that the transfer of billions of euros in pandemic-related debt to a separate climate fund was illegal.

Now Berlin faces a hole in the budget of up to 60 billion euros and potentially a total stop of the so-called “energiewende”, the ongoing transition by Germany to a low carbon, environmentally sound, reliable, and affordable energy supply.

Germany’s 2024 budget and financial plans through 2027 are set to be revealed later this week.

Economy minister Robert Habeck had previously warned that a negative ruling would “sweep the rug from underneath” the government’s plans to stabilise the economy.

Constitutional expert Professor Volker Boehme-Neßler called the verdict “a slap in the face of the traffic light coalition” in Bild.

Regarding the German government budget, the court sees “not a permissible fiscal manoeuvre, but an unconstitutional accounting trick that undermined the debt brake”. That is why Karlsruhe [where the court is based] has now put an end to such “juggling”.

A whole host of environmental initiatives aimed at reducing emissions are now in the balance.

The ruling led to an immediate freeze of the climate fund, except for construction-related expenses. A new plan for the energy transition therefore needs to be devised.

The judges pointed out that there are institutional brakes on accruing debts, and the government should have abided by these rules.

The German government will closely monitor the ruling, Chancellor Scholz said, and carefully evaluate its consequences.

Finance minister Christian Lindner said Karlsruhe had “for the first time commented on the use of special funds”, bringing clarity but also causing major problems.

Friedrich Merz said the verdict put an end to the administration’s “self-serving mentality” and strengthened the debt brake. “A key cornerstone of the government’s budget and financial planning is collapsing,” he told the journalists.

His party, the Christian Democratic CDU, called the decision “a slap in the face” for the government.

CDU budget expert Mathias Middelberg, one of the plaintiffs, spoke of a disaster for the government. “The entire budgetary policy of the traffic light is based on constitutional violations,” he said.

In government questioning in the Bundestag, he pointed to the historical dimension of the ruling. For the first time, the Federal Constitutional Court has declared a federal budget unconstitutional and also null and void. “This has never happened before in the history of this republic,” Middelberg said.

Similarly harsh, the Alternative für Deutschland (AfD) said: “The fact that the traffic light government is wasting our tax money hardly surprises anyone.”

“The fact that it has been violating the constitution … has now been confirmed by the highest court, and that is sufficient reason for the resignation of this chaotic force, including new elections.”

They also criticised the fact that the government had dinner with the judges just last week for an “exchange of ideas” and demanded the resignation of the government over the now failed budget.

The German Union for Nature and Biodiversity Conservation said the ruling “pulls the rug from under the feet of current climate protection funding”.

The German government had agreed to transfer the pandemic debt to a climate fund in December 2021. This was accomplished through the Second Supplementary Budget Act 2021, which altered the Budget Act for 2021 retroactively. The constitutional court concluded that this was unconstitutional.

On top of this, the government altered the accounting basis under which borrowing was tallied against the budget deficit in the year it was done. As a result, the 60 billion euro transfer was registered as a deficit only in 2021, not in the years 2023 and 2024, when the majority of the spending was expected to occur.

This trick made it look like Germany was following the imposed “debt brake”, in force in Germany.

Germany’s main opposition party, the Christian Democrats, took to the courts to challenge the controversial move.

The issue will be on top of the agenda in the plenary on November 16, with some urging a vote on the removal of the debt brake altogether. However, the procedure for the 2024 budget is off-limits.

It is unclear what the future holds for the government. The fiscally conservative finance minister, Christian Lindner, is under fire, as he is seen as the main person responsible for the unconstitutional budgetary moves.

Climate activists in Germany are demanding new taxes and loans to keep the energy transition going.

Greenpeace Germany said Chancellor Scholz should provide financial assistance to citizens on their path to climate neutrality. “Loans, new taxes and abolishing climate-damaging subsidies should not be taboos,” they said in a statement.