First step towards suspending the debt brake

With a final repair, the federal government wants to make the current year’s budget constitutional. The cabinet launched a supplementary budget on Monday – and thus initiated the first steps towards the renewed suspension of the debt brake. Time is of the essence because changes made after the end of the year would be vulnerable. The final decision should therefore be made in the Bundestag before Christmas.

“With the supplementary budget for 2023, we are drawing the consequences from the ruling of the Federal Constitutional Court,” explained Finance Minister Christian Lindner. However, no additional debt would be taken on, he emphasized. The FDP leader’s ministry said: “It’s about healing a legal violation that would occur if we didn’t do anything now.”

If the Bundestag agrees – and does not take the opposition to court – the problem with the 2023 budget should be off the table. But the future of important projects for more climate protection and the development of a CO2-neutral economy remains just as controversial as the fate of the debt brake.

A supplementary budget is a subsequent change to a budget that has already been approved by Parliament. The traffic light government now wants to legally secure loans that have already been used to curb energy prices and to support flood victims this year. It’s about 45 billion euros. After the Karlsruhe ruling, it is clear that the government should not have taken out these loans without further ado.

The judges decided that the federal government cannot reserve emergency loans for later years. According to experts in the Economic Stabilization Fund (WSF) for energy price curbs and in the flood relief fund, that is exactly what he did. Now 43.2 billion euros in the WSF and 1.6 billion euros in development aid are to be placed on a legally secure footing.

The prerequisite for all of this is that the Bundestag declares an extraordinary emergency and thus suspends the debt brake for the fourth time in a row. In recent years, Parliament has justified this first with the Corona crisis and then with the effects of the Ukraine war on German public finances.

A similar argument will be made this time: The profound humanitarian, social and economic consequences of the war will also have a significant impact on the state’s financial situation in 2023. The repair of the flood damage from summer 2021 has not yet been completed.

The Union announced that it would examine the justification very carefully and then decide how to vote in Parliament. Only then will the parliamentary group decide whether to take the matter to the Constitutional Court, said Union parliamentary group leader Friedrich Merz on Monday. With the planned construction of the traffic light, there seems to be a way to make the supplementary budget conform to the constitution. “That doesn’t mean that we agree to the budget. I don’t see that,” emphasized Merz and added: “But I don’t see the question of whether we’ll sue against it at the moment.” Parliamentary group vice-president Mathias Middelberg told the German Press Agency that he did not recommend filing a lawsuit. The Union had filed the first lawsuit with the Constitutional Court.

However, due to the supplementary budget, the federal government has even greater financial problems than expected. Because she had to recalculate the scope that the debt brake gives for borrowing. The regulation in the Basic Law allows small amounts of new debt – the worse the economic situation, the more. The recalculation showed: The federal government is allowed to incur ten billion euros less in debt than expected.

Instead, the money will now be taken from a reserve set up during the refugee crisis. These funds were actually planned for the coming years – which is likely to make drawing up the budget for 2024 even more difficult.

In addition, the Ministry of Finance canceled a loan of ten billion euros for the stock pension because the foundation required for this can no longer be set up before the end of the year. The finance ministry said the plan – a pet project of the FDP – is not off the table. The stock pension is intended to relieve the burden on pension insurance in the longer term. A capital stock is to be built up bit by bit from public funds, the income from which will be used to stabilize pension contributions and the pension level.

The supplementary budget also seals the end of the pot for energy price brakes. Whether the electricity and gas price brakes will be continued and financed from the core budget next year remains controversial within the coalition.

It is also unclear when and how the budget for 2024 can be decided. Fundamental decisions are necessary here because, according to Lindner, up to 20 billion euros need to be saved after the ruling.

“Saving is the order of the day,” said FDP parliamentary group leader Christian Dürr. From the FDP’s point of view, however, the debt brake should not be touched. In this context, Dürr criticized statements by CDU prime ministers who had spoken out in favor of reform.

The Greens and the SPD are also calling for a reform of the debt brake. Green party leader Omid Nouripour emphasized that cutting through savings was not an option. The modernization of the country must progress and Germany must not lose its competitiveness.

Many projects to modernize the economy should be paid for from the climate and transformation fund, which is missing 60 billion euros according to the ruling. According to the Ministry of Finance, all of the mandatorily promised funds could flow in the coming year. However, which of the agreed projects can be implemented is controversial.

In any case, Economics Minister Robert Habeck wants to stick to the funding of economic projects worth billions. The projects from the climate fund affect the “economic core of Germany,” he said. With regard to companies, the Green politician emphasized that trust must now be created that all projects should be made possible.