FROM POLITICO Germany freezes new spending as budget crisis deepens As Germany’s financial woes grow more acute, there are growing calls to suspend the country's debt brake - BY HANS VON DER BURCHARD NOVEMBER 21, 2023 12:49 PM CET

 FROM  POLITICO

Germany freezes new spending as budget crisis deepens

As Germany’s financial woes grow more acute, there are growing calls to suspend the country’s debt brake.

General cleanup of Brandenburg Gate after paint attack

The government is now bracing for the potential of far wider financial implications | Filip Singer/EPA-EFE

BY HANS VON DER BURCHARD

NOVEMBER 21, 2023 12:49 PM CET

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BERLIN — Germany’s finance ministry has imposed a spending freeze on all federal ministries, deepening a budget crisis that has rocked the ruling coalition since a bombshell ruling by the country's top court last week.

The finance ministry decision, which halts most new spending authorizations, followed a ruling by the constitutional court last week that blew a €60 billion hole in the government's coffers.

The government is now bracing for the potential of far wider financial implications stemming from the ruling that may limit its ability to draw money from a variety of special funds that have been established to circumvent the country's debt brake, which restricts the federal deficit to 0.35 percent of GDP, except in times of emergency.

In a letter to all ministries, State Secretary Werner Gatzer said the finance ministry is freezing spending "in order to avoid further upfront burdens on future financial years." The step does not impact those financial commitments that have already been made, Kevin Kühnert, the secretary general of Chancellor Olaf Scholz's Social Democratic Party (SPD), told public television on Monday.

As the government grapples to understand the full ramifications of last week's court ruling, lawmakers from the Bundestag's budgetary committee held a public hearing with legal experts on Tuesday morning to assess the impact.

Although the €60 billion financial gap following last week's court ruling theoretically stretches over several years, in practice the effect will be more immediate, Thiess Büttner, a professor from the University of Erlangen-Nuremberg, said in a written statement to parliament ahead of Tuesday's hearing. "There is a need for consolidation in the budget planning for the coming year of €52 billion," he said.

The government's inability to find the money it needs to finance its sweeping agenda to accelerate the green transition and shield German industry from high energy costs is leading to growing calls, particularly on the political left, for the government to suspend the debt brake by declaring an emergency, as it did during the coronavirus pandemic and in the aftermath of Russia's full-scale invasion of Ukraine.

"In my view, we will not be able to avoid applying the exemption rule for 2024 — possibly even longer," the SPD's party whip in the Bundestag, Rolf Mützenich, told German news outlet Stern.

Yet members of the Free Democratic Party (FDP), part of the country's tripartite ruling coalition, have so far resisted calls to suspend the debt brake.

FDP Finance Minister Christian Lindner argued last week that the constitutional court ruling does not justify suspending the debt brake.

"We will have to make more effective policies with less money than in the past decade," he said.

Yet others within the government are pushing for a fundamental reform of the debt brake, which was introduced in 2009.

In a letter to all ministries, State Secretary Werner Gatzer said the finance ministry is freezing spending "in order to avoid further upfront burdens on future financial years" Hannibal Hanschke/EPA-EFE

"The way the German debt brake is constructed is not intelligent enough," Green Economy Minister Robert Habeck told public broadcaster ARD on Monday. The debt brake, he added, was "made in a different time, when we always had cheap gas from Russia, when China was always ... our purchasing market, and when the Americans were always reliable, loyal friends and took the military burden off our shoulders because there was no war in Europe."

Those times, he added, are now over.