For my entire life, German governments have lit money on fire with great abandon. The pandemic was a particularly insane period of spending. Among the final acts in this spree was a supplementary budget pushed through by Merkel’s government in April 2021, allocating an additional 60 billion Euros for pandemic extravagances. The money was to come from additional debt, and it ought to have violated our constitutional debt ceiling rules. Because Covid qualified as a scary emergency, however, these rules did not apply.
Somehow – and this is quite an incredible thing to type – the CDU/CSU and SPD managed not to spend this money, leaving the 60 billion Euro credit authorisation floating about as a tantalising possibility when the clown car known as the Scholz coalition came to power five months later. In 2022, they decided to use this 60 billion Euros to top off their Climate and Transformation Fund (KTF). This money would help us “transition towards a climate-friendly economy,” “expand electromobility and heating networks,” “promote the replacement of climate-damaging heating systems,” “modernise Deutsche Bahn” and also subsidise various industries. While the KTF is supposed to be funded by CO2 tariffs, the enormous revenues these generate aren’t enough to pay for all the crazy stuff our climate protectors want to do, so they poured the 60 billion into the pot, enlarging it by almost 40%.
The CDU, now in the opposition, were not happy at the redirection of their Covid credit, and they sued, arguing that the manoeuvre constituted a violation of the debt ceiling and therefore of the German constitution. This made Green Economics Minister Robert Habeck very angry and also nervous. In June, when the lawsuit was still pending, he complained angrily in the Bundestag:
We are facing challenges in energy-intensive industries: steel, chemicals and plastics. And here again, I would say the fact that the CDU/CSU is now taking legal action against the funds that have been reserved for this is damaging to our country and it will hurt our heating reforms. In fact, this would mean pulling out from under us the floor on which we are trying to stabilise the economic situation in Germany.
Well, today Habeck’s worst fears were realised. The Federal Constitutional Court have declared the supplementary budget from 2021 null and void, plunging the Scholz clown car into serious political crisis.
There is now a gap in the federal budget so large that extra savings measures cannot close it.
The exact consequences are hard to estimate. Most likely, however, Germany is facing a government crisis the likes of which the coalition has never seen before.
If the government does not want to cancel [all of its insane environmental spending] … it will have to reallocate money on a grand scale. The task is almost impossible given the already-tight budget.
The leadership … have all played their part: Christian Lindner (FDP), who invented the sleight of hand in the first place as the newly appointed Finance Minister,1 Robert Habeck (Greens), who pushed for it the hardest in view of his climate projects, and Chancellor Olaf Scholz (SPD), who agreed to the whole thing …
Governments have collapsed over less. Financially, as harsh as it sounds, the coalition is dead now. Politically, it has hit a brick wall.
If the government survives this catastrophe, if it holds together until the end of the legislative period, it will only be because the alternatives are worse for everyone involved.
All of this sounds boring, I know, but let me explain why it is so bad for the idiots in charge: The Scholz coalition is not only unpopular, having absolutely destroyed polling for all three parties involved, but also very fragile. The FDP have repeatedly pledged to oppose increased taxation, while the Greens have been eager to realise their wildly expensive climate schemes, all in the aftermath of the ruinous pandemic and the energy crisis. Spending on credit was the way they hoped to square the circle, and now they’re not allowed to do that. Their precious and deeply stupid Climate and Transformation Fund is in chaos.
All potential solutions seem highly unpromising. The government could try to declare a new emergency to evade the debt ceiling, but I doubt the courts will permit this, as there is no emergency pending. Had the leadership been less stupid, they could’ve tried this last year when the Ukraine war broke out, but it sounds odd to decide that this was a crisis necessitating special budgetary provisions a year and half after the fact. The SPD and the Greens will want to get around the debt ceiling via constitutional amendment, but that would require a two-thirds vote of the Bundestag and therefore CDU cooperation. Seeing as the CDU sued to put the government in this crisis, it’s hard to see why they’d help them get out of it. Alternatively, Scholz and company could try to raise taxes to cover the shortfall, but this would be political suicide for their battered junior FDP partners, who have pledged to stop tax hikes.
I suspect the government will limp along in a stricken state until 2025, but it’s not inconceivable that the coalition collapses. In that case, the SPD could try to partner with the centre-right CDU/CSU instead, although that seems unlikely for many reasons. New elections are just as hard to imagine; they would probably see the FDP out of the Bundestag for failing to meet the 5% minimum hurdle and bring the CDU to power. 1
I don’t think this is right. Lindner agreed, but Welt reports the scheme was dreamed up by Scholz and his former finance minister Werner Gatzer.