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The Constitutional Court’s verdict on November 15 was a political bombshell for Chancellor Olaf Scholz and his federal government. It ruled that the government cannot reallocate 60 billion euros meant to fight the COVID-19 pandemic to instead address climate change.
Whether for more efficient heating, expanded rail, or subsidizing energy costs, virtually none of the climate-friendly projects the government had envisioned can be funded as currently planned. More money, in the form of credit, was earmarked for the pandemic than turned out to be necessary.
Shortly after coming to power at the end of 2021, the current government led by the center-left Social Democrats (SPD) in coalition with the Greens and neoliberal Free Democrats (FDP) transferred the remaining allowance to a climate transformation fund (KTF). The fund was to be used to finance energy-efficient refurbishment of buildings, electromobility but also the modernization of German Rail.
Germany’s ‘debt brake’
The court ruled this unconstitutional because it violates Germany’s debt rules, the so-called “debt brake” enshrined in the country’s constitution. It restricts new debt to 0.35% of nominal GDP annually for the federal government and also banks it for Germany’s regional states. It was written into the “Basic Law” in 2009 in the aftermath of the European financial crisis to ensure the nation’s debt-to-GDP ratio does not exceed the 60% threshold fixed in the European Union’s Maastricht Treaty.
The debt rules were suspended to fight the pandemic, as it was classified as an emergency exception.
Climate change, which some call a crisis, has not been officially designated as such and therefore the normal debt rules apply. The government, the court said, therefore can’t borrow the money.
The latest ruling was in response to a lawsuit filed by the conservative opposition bloc of Christian Democrats and Christian Social Union (CDU/CSU). After the verdict, its lawmakers have been jubilant. The conservatives were in power until two years ago and are again polling ahead of its competitors.
So what options does the government have now? And, first and foremost: Can the ruling coalition survive this crisis? The high court’s ruling lays bare the tensions inherent among the coalition parties.
SPD eyes tax hikes
The SPD wants to financially protect low- and middle-income voters, who it believes have shouldered enough of a burden.
Given the multitude of crises and projects facing Germany, voices within the SPD have been calling for higher taxes for some time already. In his reaction to the ruling, Party Leader Lars Klingbeil stopped short of explicitly demanding tax hikes. But he hinted at turbulent negotiations. “I think it’s important that we do not now stop modernizing this country. In the coalition, we’re going to put our heads together, with the government, the parliamentary groups, and with the parties. We’ll have to discuss a lot of fundamentals,” he said.
FDP for strict savings
Tax hikes, however, are a no-go for the FDP, the party of Finance Minister Christian Lindner. An end to the debt brake is likewise off the table. The FDP clings to its budget-cutting ways and considers the Greens’ investment plans exaggerated. They now suggest cutting back on social spending.
As Lindner has repeatedly said, the FDP rejects any tinkering with the debt brake. And in any case, changing it would require a two-thirds majority in parliament. With the opposition CDU-CSU firmly backing the debt brake, that would be currently impossible.
Greens on the brink
Green Party co-leader Ricarda Lang rejected the idea of saving on social issues. “We know that right-wing parties in particular are constantly mobilizing people’s social concerns and fears,” she told public broadcaster ZDF.
With the debt brake staying in place and tax hikes likely doomed to fail against the resistance of the FDP and opposition CDU-CSU, the only option remaining is tight-fisted austerity. That would hit the Greens hardest, for whom investments in climate change mitigation have become an existential necessity.
The Greens — the only party in government that has not seen its voter support diminished since the 2021 general election — see the expensive climate-friendly retooling of the state as the core reason for their participation in government. They are willing to take on new debt to finance their plans.
The Greens have already swallowed several bitter pills in the coalition, notably the recent tightening of refugee policies. If the Greens’ core issue, climate change mitigation, loses its financial backing, the party could soon be asking what point there is in staying in the coalition. Later this week at the Green Party congress in Karlsruhe, the party’s Vice-Chancellor and Economy Minister Robert Habeck will surely be getting an earful from the rank and file.
Influential environmental groups are also putting on the pressure. Greenpeace has called the Constitutional Court’s ruling “a bitter setback for climate protection.”
Government without direction?
Evidently, Germany’s three-way coalition government is not marching in one direction. Chancellor Olaf Scholz attempted to put on a brave face telling the parliament, the Bundestag “am convinced that the governing coalition will succeed in making all the right suggestions.”
But the government’s approval rating among voters has hit rock bottom. Fresh elections would therefore likely hurt all three parties. The SPD, Greens and FDP are desperately seeking a solution one that’s nowhere in sight.
This article was originally written in German.
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