Germany announces special budget to avoid crisis

Germany announces special budget to avoid crisis

The move comes after days of uncertainty triggered by the country’s highest court ruling that declared some elements of the 2023 budget invalid due to a rule limiting borrowing. The so-called debt brake can only be suspended in an emergency, and the government had suspended it for the past three years due to the pandemic and soaring energy prices following to Russia’s invasion of Ukraine.

Mr. Lindner, who leads the fiscally conservative Free Democrats, voted to respect borrowing limits for the 2023 budget.

“No new debt will be incurred, but funds already used to overcome the crisis will be placed on a secure legal basis,” Lindner said in a statement on Thursday. He did not give details.

Chancellor Olaf Scholz has faced growing unrest since the court ruled that money the government wants to spend on green projects must come from the regular budget, blowing a multibillion-euro hole in the government’s plans .

Economists and business leaders, as well as some lawmakers in Mr. Scholz’s three-party coalition, have called on Mr. Lindner to take steps to clarify spending plans for 2023 to ensure stability and open the path for lawmakers to approve a budget for 2024.

Next year’s budget was due to be approved on Thursday, but the debate was postponed due to the unrest following the court ruling. If the government were to declare an emergency for 2023, citing high energy prices caused by Russia’s war against Ukraine, that could be seen as a reason to suspend the borrowing cap again.

The German economy is expected to contract in 2023, held back by falling industrial production and high inflation. The country’s economy ministry had predicted a return to growth in 2024, but economists have warned that without expected investments in infrastructure, such as railways and support for green industries, this could be at risk.

The European economy as a whole could also be affected by a slowdown in spending by the Berlin government.

“If there is less investment and spending in Germany over the next few years because there is less money available, this will inevitably have an impact on the EU economy,” Robert said Grundke, head of the OECD’s Germany office. told Reuters.

In 2009, Germany imposed borrowing limits on itself as it struggled to emerge from its status as the “sick man of Europe” during the global financial crisis. The debt brake law is enshrined in the country’s constitution, limiting annual borrowing to 0.35% of gross domestic product, or around 12 billion euros per year.

Exceptions are permitted in cases of emergency, including natural disasters or pandemics. In its ruling last week, the court stipulated that funds borrowed during a specific emergency cannot be reallocated for other purposes.

A proposal on how to correct the 2023 budget will be presented to Mr Scholz’s cabinet next week. Once approved by ministers, it will be submitted to the German Parliament.

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David B.Otero

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