Germany’s left-wing government is currently experiencing a minor existential crisis. The cabinet, led by Social Democrat Olaf Scholz, replaced Angela Merkel’s weary government with high hopes at the end of 2021, but since then a series of setbacks have hit the multi-party coalition known as the Ampel, or ‘traffic light’.
The current crisis in the German government was triggered by a ruling by the powerful constitutional court in Karlsruhe in the south-west of the country, an institution Germans are otherwise very proud of. The Verfassungsgericht, with a stroke of the pen,
retroactively invalidated the government re-channelling pandemic fund monies to the climate protection fund.
Such court interventions are known as ex-post norm control, and German politicians are generally happy for the courts to apply this practice to measures they dislike in other countries. But not this time.
Of course, it is about the Schuldenbremse, Germany’s ‘debt brake’. The introduction of the Schuldenbremse was prompted by the global economic crisis that started in 2008. As the countries of southern Europe plunged into a terrifying debt crisis, the then German government, with broad political support, introduced this self-limiting measure, which essentially set a ceiling to the federal deficit at 0.35 percent of GDP. This rule was enshrined in the constitution and was adhered to for many years—until COVID delivered a painful blow to Europe’s and Germany’s economy.
The rules of the Schuldenbremse allow the provision to be repealed in exceptional circumstances. This was done during the pandemic, allowing the German government to access hundreds of millions of euros in extra resources (loans)—without having to include them in the country’s main budget.
While other eurozone countries, such as economically and financially usually unreliable Greece and Italy, have traditionally been dealt with harshly by previous German governments when their creative accounting solutions were exposed, Berlin was not so hard on itself. The comfort of repealing the Schuldenbremse is easy to get used to, and the crises of recent years—COVID or the war in Ukraine—always presented the German government with a good opportunity to spend a little more.
But as luck would have it, there was still some money left over from the previous Schuldenbremse cuts allowed for the pandemic, which the Scholz government subsequently used to finance the climate projects that the Greens were obsessed with. Despite being warned by lawyers and even informally by the constitutional court that the Ampel’s plan was unconstitutional, the government—with Scholz in the lead—seemed not to want to hear these warnings. The outcome is known to anyone who has opened a major European newspaper in the last two weeks.
The case is certainly telling as concerns the left-liberal coalition at the helm of Germany. The cabinet is headed by Olaf Scholz, who once served as mayor of Hamburg, Germany’s richest city, and more recently as finance minister in the last Merkel government, so someone with a deep knowledge of both the Schuldenbremse and the ways German courts work.
But his coalition partners have almost no experience of government.
Robert Habeck, the country’s Green Party economics minister with a degree in philosophy, was formerly environment minister of Schleswig-Holstein, a province known more for its natural wonders than for its considerable economic power. Christian Lindner, the finance minister of the Free Democrats (FDP), a party that specializes in representing the political interests of Germany’s super-rich, has never held an elected office in his life.
Although knowledge of constitutional law is clearly not a prerequisite for holding government posts in Germany, one can be confident that those who hold ministerial posts in finance will be briefed on the rules of the Schuldenbremse by colleagues more experienced than they are. Why, then, did Habeck and Lindner have so much faith that Karlsruhe would not derail the government’s plan to reuse pandemic funds? Were they so impressed by the Social Democrats’ election slogan for 2021 (Scholz packt das an—Scholz gets it done)? Or perhaps they thought that if they broke the constitution with the slogan of a green transition, which has been praised to secular religious heights in Germany, the constitutional court would be sympathetic to them?
But Karlsruhe was not sympathetic: emergency rules cannot be applied at will, pandemic-approved borrowing deadlines cannot be delayed by years, and the Greens’ climate policy dreams cannot be financed from the remaining budget.
Olaf Scholz was relatively terse on this in the Bundestag on Tuesday. He said that Germany was now facing challenges the likes of which it had never faced before, both in terms of size and concentration. While the Chancellor did not admit that it was a mistake to channel the money inappropriately, the mournful mood suggested that the Ampel was regretting having touched the funds.
All the more so because, according to the constitutional court ruling,
the money must be put back where it belongs,
and partly because of this, a hole has been created in the 2023 budget retroactively, which can only be corrected by new borrowing—which would require the repeal of the Schuldenbremse once again, citing an emergency. In this case, as it was the case before, the legal basis is likely to be provided by the war in Ukraine.
It seems that the Christian Democrats, who represent the largest opposition, will not make things too difficult for the Ampel when it comes to the ex-post budget, that is, they will not sue in Karlsruhe because the government wants to declare a retroactive emergency in December for this year.
A much more exciting question is how these events will affect the German budget in 2024. It has not yet been adopted, and the primary objective is to patch up the 2023 household. The constitutional court ruling will almost certainly have a major impact on that budget, as it has reinforced the strictures on indebtedness and further borrowing. Who knows: in the end, the liberal German government might actually be forced to spend only as much money as it earns?