| 26 February 2024, Monday |

German government unveils budget fixes as way out of crisis

On Monday, the ruling coalition in Germany published a supplemental budget that will lift a self-imposed borrowing cap temporarily following the government’s spending plans being severely damaged by a verdict by a constitutional court.

As Chancellor Olaf Scholz’s administration struggles to emerge from a crisis that has sparked warnings about growth and an industry exodus, Germany will suspend its constitutionally enshrined debt brake for a fourth year in a row in order to borrow roughly an additional 45 billion euros ($49 billion) in the budget, which the parliament must approve.

Berlin was forced to freeze most new spending commitments after the court blocked plans to re-purpose billions of euros of unused pandemic funds towards green projects and industry subsidies.

It will suspend the debt brake for the 2023 budget to allow higher borrowing prompted by the court’s ruling, before finalising a 2024 budget that could see cuts in some ministries in order to keep spending commitments elsewhere.

The brake sets a limit on new borrowing, though it can be exceeded in “exceptional” circumstances.

Friedrich Merz, who leads the resurgent opposition Christian Democratic Union party that launched the initial lawsuit before the constitutional court, warned that fresh legal action was possible should the government seek to suspend the debt brake for next year’s budget, too.

  • Reuters