German court blows 60-bn-euro hole in budget with debt ruling

FRANKFURT: Germany’s top court wiped 60 billion euros from a climate fund Wednesday as it decided the government had broken crucial debt rules, leaving the ruling coalition’s budget in disarray and testing its unity anew.

The Federal Constitutional Court had been examining accusations from the main opposition CDU party that Chancellor Olaf Scholz’s three-party coalition had acted in contravention of the “debt brake”.

This key commitment to balanced budgets caps new borrowing in Europe’s top economy to 0.35 percent of gross domestic product.

In particular, it looked at a decision to transfer 60 billion euros ($65 billion) of loan authorisations that had been part of coronavirus pandemic support programmes to a fund aimed mainly at fighting climate change.

The coalition had argued this should be kept outside the main budget, as it was approved as part of emergency funding when the debt brake was suspended during the pandemic.

But the court in Karlsruhe, southwest Germany, found this move was “incompatible” with the constitutionally enshrined debt rules and overturned it, ruling in favour of a legal complaint lodged by the CDU. “The court’s decision means that the volume of the ‘climate and transformation fund’ is reduced by 60 billion euros,” it said in a statement.

If the state “has entered into obligations that it can no longer service as a result of this reduction,” it must be compensated for “through other means”.

Scholz said the judgement would be “carefully examined”, and it could have implications for spending at the national and state levels.