Germany considers suspending debt brake as coalition cracks show By Reuters

By Markus Wacket and Andreas Rinke

BERLIN (Reuters) – German Economy Minister Robert Habeck on Monday criticized the continuation of what he called the country’s “inflexible” debt brake and criticized Finance Minister Christian Lindner over planned subsidy cuts, saying it was “just talk”.

The comments laid bare tensions within Chancellor Olaf Scholz’s ruling coalition after a court ruling last week that wiped 60 billion euros ($65 billion) from the federal budget pushed the government to scramble to find other sources of funding.

Two government sources have warned that projects in key areas for Germany’s industrial competitiveness are now under threat, including plans for microchip factories, the expansion of the battery supply chain and the decarbonisation of electricity. ‘steel.

The government is considering suspending the debt brake enshrined in Germany’s constitution to emerge from the spending crisis, a source told Reuters, while a leading member of Scholz’s own party also called for such a move.

Habeck, of the pro-spending Greens party, warned that the court ruling could have serious consequences for Germany’s ability to support its industry in a green transition and prevent jobs and value creation from shifting abroad.

He cited laws in other countries, particularly the U.S. Inflation Reduction Act of 2022, as examples of governments helping the industry stay competitive.

But Lindner, of the fiscally conservative Free Democratic Party (FDP), opposes tax increases and loosening spending rules as the government weighs the extent of the fallout. decision during negotiations on next year’s budget.

Asked about Lindner’s assertion that the government should do more with less subsidies, Habeck replied: “That’s why it’s just talk. The reality is different.”

“Where do you want to cut 60 billion in social benefits? That completely misses the drama of the situation,” he told Deutschlandfunk radio.

Habeck said he was not proposing abolishing the debt brake enshrined in the German constitution, but added that it “is inflexible.” He highlighted the lack of growth in Europe’s largest economy and the challenges of high inflation and energy prices.

The Finance Ministry declined to comment while a government spokesperson said the scale of the problem was still being assessed. Lindner warned over the weekend that there would now be a lack of new government funding to support the economy and infrastructure.

“The short-term consequences are difficult. In the long term we can achieve benefits. We are now forced to modernize the economy with less public subsidies,” he told the Bild am Sonntag newspaper.

THE RESURGENT OPPOSITION

The court ruling, which declared the government’s decision to shift unused pandemic-related funds to climate initiatives and industry support illegal, spurred the resurgence of the CDU/CSU opposition alliance, which filed the lawsuit.

Sebastian Brehm, CSU finance spokesman, criticized what he called Habeck’s “unbearable insults” towards the opposition and the Constitutional Court.

“Because it is neither the judgment of the Constitutional Court nor the lawsuit brought by the CDU and the CSU which endanger the economy and employment,” he declared.

“Rather, it is about the unhealthy and unconstitutional fiscal policy of the federal government and the (three-party) coalition. You alone are responsible for the consequences.”

The opposition said the budget for 2024, as presented, was not fit for purpose, but coalition lawmakers insisted it would be on track to be passed d by the beginning of next month.

Attention is also now turning to other special off-budget funds that could be at risk of legal challenge, including a €200 billion Economic Stabilization Fund (ESF).

“One possibility could be to suspend the debt brake in 2023… but not in 2024. But everything is open,” a government source told Reuters.

($1 = 0.9168 euros)