German finance minister defends 2023 debt brake suspension forced by court ruling

By Christian Kraemer and Maria Martinez

BERLIN (Reuters) – German Finance Minister Christian Lindner defended on Friday his supplementary budget for 2023 which suspends Germany’s cap on borrowing this year after a top court ruling tore up the government’s spending plans.

Lindner, leader of the fiscally conservative Free Democrats, has been a staunch defender of the constitutionally-enshrined debt break in the past and is reluctant to agree another suspension in 2024 as Germany tries to find a way out of its budget crisis.

“We are now creating legal certainty,” Lindner told lawmakers at Germany’s parliament.

Germany’s constitutional court ruled on Nov. 15 the coalition government’s decision to re-allocate 60 billion euros of unused debt from the pandemic era to its climate and transformation fund was unconstitutional.

The ruling also affects other off-budget funds that Germany has used over the years to finance government policy in order to comply with its self-imposed debt brake restricting the public deficit to 0.35% of GDP.

Germany can suspend the debt brake if it is hit by a natural disaster or “exceptional emergencies” that are beyond the control of the state and significantly affect its finances.

Its suspension for a fourth year in a row will allow the government to borrow roughly an extra 45 billion euros ($49 billion) as part of the regular 2023 budget.

This sum was previously mainly financed through the country’s 200 billion euro Economic Stabilisation Fund which the government is planning to discontinue by year-end.

Lindner said that the national debt-to-GDP ratio would fall to 64% in 2024 from 69% in 2021.

“The direction is right,” Lindner said. “We want to continue in this direction.”

If the court’s ruling is implemented in full, Germany’s economy could shrink by up to half a percentage point in the coming year, the federation of German industries (BDI) said on Friday.

The BDI added, however, a reliable economic forecast for the German economy in 2024 is currently not possible due to the uncertainties surrounding the 2024 budget, the climate and transformation fund and other special funds.

“Supporting the economic recovery requires planning certainty for companies and therefore a quick decision on which of the necessary funds will be made available,” BDI’s managing director Tanja Goenner said.

The budget hammerblow from the court has heightened tensions in Chancellor Olaf Scholz’s already fractious three-way coalition, which has seen its support slump since taking office nearly two years ago.

Lindner spoke of intensive talks among the coalition partners over the 2024 budget which, according to Lindner, faces a 17 billion euro gap.

“It won’t always be easy,” he said of the negotiations.

($1 = 0.9181 euros)

(Reporting by Christian Kraemer. Writing by Maria Martinez; Editing by Toby Chopra)