BERLIN – German Chancellor Olaf Scholz said Wednesday that his ruling coalition will seek to present new budget plans “very quickly” to parliament, after a Constitutional Court ruling last week threw his government and its finances into disarray.
The chancellor is facing mounting criticism because he has not yet been able to offer a proposal on how to make up for Germany’s massive budget deficit one week after a shock court ruling left a €60 billion hole in the books.
It’s an accounting mess that now casts doubt on future payments for energy, the green transition of industry and microchip manufacturing.
More importantly, last week’s ruling not only means a delay to next year’s budget — which became clear on Wednesday when a parliamentary committee postponed the initial adoption of 2024 spending plans — but it could also require a supplementary “emergency” budget for this year to deal with the issue. Repercussions of the court’s decision.
Speaking at a press conference with Italian Prime Minister Giorgia Meloni in Berlin, Schulz evaded specifying what would happen next, saying the consequences of the ruling still needed to be “studied very carefully”, which must now be done “very quickly and quickly”.
The Social Democratic Chancellor said his three-party coalition, which also includes the Greens and the liberal Free Democratic Party, is determined to move forward “very quickly” with the new budget plans, and “make sure that what we set out to achieve” is “to hold together well in Germany.” “In order to further develop our welfare state, in order to modernize our economy – it can actually go much further.”
However, he did not say where he could make the spending cuts that appear necessary to achieve this.
Schulz had already sounded optimistic on Tuesday that despite the budget cuts, Germany could still pay subsidies to Intel and chipmaker TSMC to build new factories in eastern Germany.
A major consequence of last week’s ruling is that it will likely limit the ability of German leaders, both at the federal and state levels, to use money from a variety of special funds set up to circumvent the debt brake. This mechanism limits the federal deficit to 0.35% of GDP, except in times of emergency.
During a Budget Committee hearing on Tuesday, several legal experts said Schulz’s government would have to present a supplementary “emergency” budget for this year to cover more than €30 billion in energy subsidy expenditures. These subsidies were financed through a special fund outside the regular budget – a practice that is likely illegal in light of last week’s ruling.
Controversially, such a decision might require suspending the debt brake for this year.
When asked by Politico during an event in Berlin on Tuesday evening, German Finance Minister Christian Lindner, who has expressed great pride in supporting debt curbs in the past, evaded giving a clear answer about the possibility of easing debt rules this year.
Lindner also said the 2024 budget would be “less moderate and a bit more restrictive.”
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