Top court blows €60B hole in Germany’s climate financing plans

The German government's decision to fund its green transition by reallocating €60 billion in unused debt unlocked during the COVID-19 pandemic is unconstitutional, Germany's top court ruled Wednesday.

The judgment deals a major blow to Germany's coalition government at a time of tense budget negotiations.

The reallocation violated the so-called debt brake, a constitutional provision that caps government borrowing except during emergencies and recessions, the Federal Constitutional Court said in a press release.

In February 2022, the federal government shifted €60 billion in emergency loans, which were originally intended to help cope with the COVID-19 pandemic, to a climate fund meant to help finance the country's green transition.

The government's decision was subsequently challenged in court by lawmakers from the center-right opposition.

"The Court’s decision means that the volume of the Climate and Transformation Fund is reduced by EUR 60 billion," the court said, adding the authorities now had to find "other means" to make up for the missing funds.

But there are other implications as well. The ruling is likely to impact how governments plan their budgets for years to come.

The decision also comes as Chancellor Olaf Scholz is embroiled in tense budget negotiations for the upcoming year, and leaves the government with a €60-billion hole in its budget.

"According to our current assessment, the deliberations on the 2024 draft budget are not affected by the ruling," German Finance Minister Christian Lindner said after the decision. "The German Bundestag's budget deliberations can therefore continue as planned."

The ruling is expected to also complicate Berlin's efforts to persuade other European governments to accept the restoration of binding EU rules on budget deficits from next year.

It is the first time Germany's top court has ruled on the debt brake since it was introduced in 2009.