Germany freezes parts of budget after court blow

FRANKFURT — The German government has frozen future spending pledges across almost its whole budget for the rest of 2023, a finance ministry source said on Tuesday, after a court ruling blew a massive hole in its finances.

The constitutional court decided last week Chancellor Olaf Scholz's coalition had broken debt rules when it transferred 60 billion euros ($65 billion) in loan authorisations earmarked for pandemic support to a climate fund.

The move upended the government's spending plans, and the finance ministry of Europe's biggest economy immediately suspended most projects under the fund from 2024.

But now, so-called "commitment authorisations" for 2023 were also being suspended, a finance ministry source said. These are commitments in the current budget that result in expenditure in later financial years.

"Existing liabilities will continue to be honoured, but no new ones may be incurred," the source said. 

Authorisations could still be allowed in "exceptional cases", it added.

Der Spiegel quoted a letter from a senior official sent to all ministries and the chancellery, saying the freeze applied "with immediate effect" and impacted the budgets of all ministries.

Government Spokesman Steffen Hebestreit told a regular press briefing in Berlin on Monday that the coalition was examining the consequences of the ruling to work out how big the budget hole was. 

The climate fund — which was worth 212 billion euros prior to the ruling — was aimed at speeding Germany's shift to an emissions-free economy. 

Cash had also been earmarked for other purposes, however, such as boosting domestic semiconductor production as Europe seeks to reduce its reliance on Asian chip imports.

The parliamentary budget committee had been due to rubberstamp the federal budget for 2024 on Thursday during a special session. But that may be in doubt after last week's court ruling. 

In their judgement, the court in Karlsruhe, southwest Germany, ruled that the government's actions had breached the so-called "debt brake", which caps new borrowing in German budgets. 

The brake was suspended from 2020 to 2022 during the pandemic and energy crisis, but came back into force this year.

The ruling has also further fuelled tensions in Scholz's uneasy coalition, particularly with the pro-market FDP, a key supporter of the debt rules, and the other two parties, which argue they should be reformed.