German Court Ruling Could Prove to Be a Game Changer against the Greens

Germany’s Constitutional Court ruled on Nov. 15 that the government’s decision of one year ago to shift non-used funds earmarked for compensation of Covid-related losses to the Climate and Transformation Fund (KTF) violates the constitutional clause on the “debt brake”, and is therefore illegal. This leaves the Berlin government with a financial hole of €60 billion for its over-ambitious climate-related projects, which require a total volume of €216 billion until the end of 2026. The “debt brake”, enacted in 2011, strictly limits the budget deficit the government is allowed to incur.

“The ruling is the worst-case scenario for the ‘traffic light’ [the three-party government coalition], commented economist Jens Südekum of the Heinrich Heine University in Düsseldorf, who advises Minister for Economic Affairs Robert Habeck of the Greens. So far, it looks as if only the funding of the energy efficiency program, which is designed to subsidize the replacement of heating systems in private homes, is ensured, and all the rest is “under scrutiny”, according to Südekum. The subsidies on the price of electricity and for establishing the chip industry in Germany would be slated for cuts.

The government has tried to downplay the consequences of the ruling, with Habeck proclaiming that the green projects planned would still be carried out “albeit with less money” — an unrealistic proposition. Mobilizing new funds in the range of 60 billion is also problematic, as the opposition CDU (Christian Democrats), which brought this case before Germany’s highest court and won, has warned it would file legal complaints against every new trick tried by the government. Plundering other positions in the fiscal budget would create such frictions among the three coalition partners, that the government might not survive. The SPD would oppose cuts affecting the social and labor market projects, while declaring a “climate emergency” to justify a suspension of the debt brake, as the SPD and Greens are considering, would run into fierce opposition from the FDP.

Postponing the planned investments to a later phase of the KTF climate fund, to 2024 and 2025 for instance, would also be challenged by the CDU at the Constitutional Court. Whatever the approach taken, it will increase the ungovernability of Germany, including if the current government is replaced, but the new one fails to reject the obsessive climate protection policy and does not focus on long overdue investments in the real economy, particularly classic infrastructure and a reliable energy supply, such as nuclear power. For such investments, the debt brake would have to be lifted for good, as the projects funded would create far more real wealth, than the amount invested.