© Reuters. FILE PHOTO: Chancellor Olaf Scholz speaks next to Finance Minister Christian Lindner and Economy and Climate Minister Robert Habeck during a hearing at Germany’s lower house of parliament Bundestag in Berlin, Germany, November 15, 2023. REUTERS/Annegret
By Holger Hansen
BERLIN (Reuters) – The German government has imposed a freeze on most new spending commitments in what an economy ministry spokesperson on Tuesday said was a necessary step as Chancellor Olaf Scholz’s coalition grapples with a deepening budget crisis.
The government’s spending plans were thrown into disarray by a court ruling last week that blocked the government from transferring 60 billion euros ($65 billion) in unused funds from the pandemic towards green initiatives and could starve some German industry of support to keep it competitive in a weak economy.
The ruling has strained Scholz’s three-way coalition, which pitches the pro-spending Greens against hawks in the fiscally conservative Free Democrats (FDP) over whether to suspend self-imposed limits on raising new debt.
The finance ministry has frozen future spending pledges across almost the entire federal budget, a letter by the budget state secretary showed, in a sign of how seriously it was taking the potential fallout to its finances.
The measure applies to all ministries and a 200 billion-euro fund that was set up to support companies through the pandemic and the energy crisis after Russia’s invasion of Ukraine.
The 200 billion-euro fund is also now under threat by a prospective legal challenge from the resurgent main opposition Christian Democrats (CDU), which had brought the successful lawsuit against the 60 billion-euro climate fund last week.
“The step reflects the necessity of the situation,” an economy ministry spokesperson said about the budget freeze. “The federal government is working intensively on solutions.”
Economy Minister Robert Habeck had on Monday warned that the court ruling could severely impact Germany’s ability to support its industry through a green transition and keep jobs and value creation from moving abroad.
That could include planned chip factories, the expansion of the battery supply chain and the decarbonisation of steel, government sources said on Monday.
Kevin Kuehnert, a high-ranking member of Scholz’s Social Democrats (SPD) party, joined those calling for the government to suspend a constitutionally enshrined debt brake to free up more spending. Finance Minister Christian Lindner has so far opposed such a move.
Cutting 60 billion euros from the budget by “reversing the transformation of our society, no longer supporting companies in international competition and thus losing jobs in Germany, that’s not something the SPD was elected to do,” Kuehnert said.
In an apparent show of unity however, Habeck from the Greens party and Digital Minister Volker Wissing from the FDP emphasised their good working relationship at a digital conference in east Germany on Tuesday.
“For us, collaboration behind the scenes looks the same as on stage,” Wissing said.
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