Germany: Suspend the debt brake and take additional action to cap energy prices

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The Berlin government intends to suspend the debt brake in place this year, appealing to parliament for an “extraordinary emergency”, so that it can then launch a supplementary budget for 2023 and thus plug the loophole created by Germany’s constitutional provision. Court last week: The judges in Karlsruhe declared that it was illegal and unconstitutional to transfer 60 billion of funds, which were allocated in the Covid Fund and then not used, to the new climate fund to cover expenses in 2022, 2023 and also 2024.

This was stated by the spokesman for the Minister of Finance Christian Lindner . The minister had previously said that loans aimed at reducing energy prices for companies and households would be guaranteed by a supplementary budget. Additional spending, no longer covered by the Climate Fund’s resources, would increase the deficit in 2023 above the 0.35% of GDP threshold allowed by the constitutional debt brake rule.

Bild newspaper wrote that the additional budget automatically suspends the debt brake for 2023.

“In agreement with the Federal Chancellor and Vice-Chancellor, I will present a supplementary budget for this year next week,” Lindner explained, adding that expenditures, especially regarding the cap on electricity and gas prices, will be placed at a “constitutionally safe expense.” basis” and therefore guaranteed.

“The federal government will propose a resolution to the Bundestag to declare an extraordinary state of emergency for 2023,” Lindner’s spokesman said. The government could go beyond the debt brake – which limits Germany’s structural budget deficit to the equivalent of 0.35% of GDP – if Germany is hit by an exceptional state of emergency, which parliament must declare by a majority.