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German Government Close to Insolvency

In the wake of the Constitutional Court ruling on Nov. 15 against fiscal tricks of the government to rally funds for the climate-protection agenda, the Court of Auditors is now issuing a warning that the planned Fiscal Year 2024 budget must not be approved, because in the wake of the ruling, numerous clarifications are required. In plain language, the entire fiscal budget is up in the air, with only a few exceptions.

The auditors declared that the ruling not only affects the climate fund, but “affects the financing of all special funds” of the Federal government. They all now fall under the rules of the debt brake. The only exception is the €100 billion special fund for equipping the German armed forces. However, according to the auditors, the Economic Stabilization Fund (WSF) for overcoming the energy crisis, totalling €200 billion spread over several years, is definitely affected.

These funds would now also have to be taken on as official debt by the Federal government. It can be assumed that this will “significantly exceed the upper limits of the debt rule for permissible net borrowing with an impact on cash flow” for 2023 and 2024, the auditors warn. According to the auditors’ calculations, the debt ceiling will be exceeded by €138.8 billion this year and by a further €48.5 billion in the 2024 budget, altogether €187.3 billion by the end of 2024, in order to comply with the debt ceiling. The only way out would be to scrap the debt ceiling, which, as stipulated in the constitution, would require a two-thirds majority vote in the Parliament. So far, such a majority does not exist.

In a panicked decision which comes close to declaring the government insolvent—a situation resembling the recent troubles in the U.S. Congress–German Finance Minister Christian Lindner decreed yesterday afternoon that all planned authorizations for spending in 2024 remain on hold, with no spending allowed that has not received explicit emergency approval. Some experts even doubt that the present spending for the Fiscal Year 2023 budget can escape a freeze. Lindner (Free Democrat) is a staunch defender of the debt ceiling; the other two coalition partners, Social Democrats and Greens, want to suspend it.

Trying to keep the ceiling, or suspending it without an in-depth restructuring of the entire fiscal policy, will drive the coalition to a breaking point. The only real way out would be a new fiscal policy supporting real-economic investments, with long-term, low-interest loans.