The German Constitutional Court’s decision in November means the government will have to redo the state budget for next year. The Social Democrats led by Chancellor Olaf Scholz and the Liberals under Finance Minister Christian Lindner have different positions regarding the solution to the crisis.
The German Constitutional Court’s decision in mid-November called into question state spending from special funds that are not reflected in the state budget. Therefore, the German government must charge all costs to the state budget.
However, since the Constitution prescribes that the state budget deficit cannot exceed 0.35% of the gross domestic product, to comply with the rule, state budget expenditure would have to be reduced or revenues increased by approximately 17 billion euros.
Even though the German state budget amounts to around 450 billion euros, the vast majority of expenditure is already planned in advance by law. At its discretion, the government can only decide on around 70 billion euros.
This amount includes additional costs for national defense, assistance to Ukraine, support for green industry and various social benefits.
Already over the weekend, the Congress of Social Democrats (SPD), led by German Chancellor Olaf Scholz, voted in favor of not reducing social benefits.
Another alternative to cutting and raising taxes is to declare next year a crisis year. This would allow using an exception to the constitutional debt rule and preparing a budget for next year with a larger deficit than the exception allows.
The SPD congress voted in favor of this solution, the Times reports.
“We cannot overcome all these crises with just a normal state budget,” said SPD co-leader Saskia Esken.
The exception to the debt rule was used to allow more borrowing than permitted for three consecutive years starting in 2020. After the unfavorable decision of the Constitutional Court against the government, the German coalition decided to retroactively declare this year as the year of crisis.
While the Greens, Scholz’s coalition partner, generally support the SPD’s desire to make use of the exemption next year too, the Liberals (FDP), who control the Finance Minister in the coalition, disagree.
FDP leader and Finance Minister Christian Lindner therefore calls for the 17 billion euro hole in the state budget to be covered only with spending cuts.
Even if Scholz and the Greens managed to get Lindner’s approval for the further borrowing plan, the government would face another problem. Friedrich Merz, leader of the largest opposition party, the Christian Democratic Union (CDU), is threatening to challenge the decision to use the exception to the debt rule in court if this happens.
The budget crisis of recent weeks began when the CDU’s Bavarian sister party, the Christian Social Union (CSU), successfully challenged in court the transfer of funds from one special fund to another and the covering of expenses through it bottom.
2023-12-11 04:58:00
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