EU Germany Freezes Government Spending as Budget Crisis Deepens - Germany took 60 billion euros intended for coronavirus and shifted it to a fund for envrionmental and green projects and got smacked by the court.

Germany Freezes Government Spending as Budget Crisis Deepens
The New York Times (archive.ph)
By Melissa Eddy
2023-11-21 21:04:56GMT

The Latest
The German government said on Tuesday it would immediately halt all new spending as it grappled with how to plug a gap of tens of billions of euros following a court ruling that has triggered a budget crisis in Europe’s largest economy.

The Constitutional Court, Germany’s highest, ruled last week that Chancellor Olaf Scholz’s government had acted improperly by taking money borrowed in 2020 to combat the coronavirus pandemic and shifting it to a new fund to finance environmental projects and green technology. The sum amounts to 60 billion euros, or $64.6 billion.

The ruling has not only undermined those environmental projects and investments, but has thrown the country’s overall spending plans into disarray.

The court decision has also strained Mr. Scholz’s three-way governing coalition, pitting the economy minister, a member of the Greens who favors spending to spur the economy, against the finance minister, from the more fiscally conservative Free Democrats.

What Is Affected: No funding pledges for next year.
The halt in new spending authorizations applies to all ministries. It also covers a special fund of about €200 billion that was set up to support companies in the aftermath of the pandemic and the energy crisis ignited by Russia’s war in Ukraine.

“We are not talking about a shutdown like in the United States,” said Christian Hasse, a budget expert for the center-right Christian Democrats. “But it means new commitments can’t be made, except under exceptional circumstances.”

The freeze will be in effect through Dec. 31, the Finance Ministry said.

Why It Matters: The “core substance” of the economy is at stake.
The economy minister, Robert Habeck, issued a dire warning of the ruling’s impact, even as Mr. Scholz raced to work out a solution.

“The core substance of the German economy is at stake,” Mr. Habeck said Monday in an interview with German public radio broadcaster Deutschlandfunk.

Economists warned on Tuesday that the ruling could dent economic growth next year. The German economy is already expected to contract in 2023, dragged down by flagging industrial production and high inflation.

“We are not yet able to see in detail what the impact of these fallouts could be, but it means that we will not be able to count on gross domestic product to grow next year,” Michael Hüther, director of the Cologne Institute for Economic Research, told a parliamentary committee.

What’s at Stake: Leaders warn investment is needed.
Among the spending commitments that could be threatened are billions in subsidies aimed at attracting new industries to Germany, such as the chipmakers Intel and TSMC.

The chancellor and Mr. Habeck have insisted that the ruling would not affect those commitments.

The pledges were made to help Germany transform its industrial sector from heavy industries to green technology, aimed at helping the country meet its goal of carbon neutrality by 2045.

Background: Germany’s controls on government debt.
In 2009, Germany imposed strong borrowing limits on itself. The so-called debt brake, written into its Constitution, restricts annual borrowing to 0.35 percent of gross domestic product, or roughly €12 billion a year. Exceptions are allowed in emergencies, including natural disasters or a pandemic. The court ruled that the €60 billion, borrowed during the pandemic, could not be used for purposes unrelated to the spread of Covid.

Germany is the only leading industrial economy to have such stringent controls.

What Happens Next: The 2024 budget is in question.
Lawmakers were expected to pass Germany’s 2024 budget last week. But after the ruling effectively ripped a $64.6 billion hole in this year’s spending plan, the talks were postponed pending a solution.

The coalition partners are aiming to reach a solution by the end of the week, Bloomberg News reported.

 

[pikachudidnothingwrong]

To be wasted on green pet issues? Good.. Maybe there is some sense left in Germany.

 

[AN/ALR56]

To be wasted on green pet issues? Good.. Maybe there is some sense left in Germany.

Germany never managed to be self sufficient in energy and food and that's what made them lost both world wars.
It's fucking insane a northern latitude, industrial power wants to switch to use solar and wind and nothing else.

Had Germany gone nuclear, it wouldn't be in this position.
Their best bet is to quit being a cuck country who let Ukraine/US blow up their largest powerline, that's the only way to save their industrial base.
Germany is being fucked harder right now than what the allied bombings and the post war disarmament did to their economy.

 

[DiggieSmalls]

“We are not talking about a shutdown like in the United States,” said Christian Hasse, a budget expert for the center-right Christian Democrats. “But it means new commitments can’t be made, except under exceptional circumstances.”

I like how eurocuck politicians say shit like this. "Well its not the United States", like that absolves them of all the faggy bullshit they're doing. While we foot the Nato defense budget they are arguing over building windmills and giving rapists apartments. Christ. Sick of eurocuck politicians, europeans can be cool. But fuck their politicians.

 

[clipartfan92]

Germany's leader vows to fix a spending crisis that's worsening gloom in the struggling economy
Associated Press (archive.ph)
By David McHugh
2023-11-24 17:02:12GMT

FRANKFURT, Germany (AP) — German Chancellor Olaf Scholz on Friday promised quick action to fix a budget crisis after a court decision blew a large hole in the almost-finished plan for next year and threatened to disrupt spending on efforts to fight climate change and cushion the impact of high energy prices caused by Russia’s invasion of Ukraine.

“Some are asking whether the financial support from the federal government, which caps high energy prices, can keep flowing or must be paid back,” he said in a video posted to X, formerly known as Twitter. “Those are “justifiable questions.”

Scholz said, however, that the government is “firm in our intention to modernize our country, so that in future, we have strong industry, good jobs and good pay when our economy is climate neutral.”

Scholz’s reassurances come as the budget crisis threatens to exacerbate problems in the world’s worst-performing major developed economy. Figures released Friday laid those issues bare.

Europe’s largest economy contracted 0.1% in the July-to-September quarter as inflation eroded people’s willingness to spend, Germany’s statistics office said.

Germany is the only major economy expected to shrink this year, according to the International Monetary Fund, which foresees a decline of 0.5%.

Meanwhile, the closely watched Ifo institute survey of business optimism showed a tiny uptick to 87.3 for November from 86.9 in October but remained well below its July level, meaning business confidence is still in the dumps.

The country’s budget crisis raises the possibility of spending cuts next year, which economists say would worsen the challenges facing the stagnating German economy. It’s struggling to adapt to long-term challenges such as a shortage of skilled workers and the loss of cheap natural gas from Russia after the invasion of Ukraine.

A court ruled last week that previous spending violated constitutional limits on deficits, forcing Scholz’s government to put off a final vote on next year’s spending plan and search for ways to fill a 60 billion euro ($65 billion) budget hole over this year and next.

The country’s Constitutional Court ruled that the government could not repurpose unused funding meant to ease the impact of COVID-19 into projects to fight climate change and offer relief to consumers and businesses hit with high energy costs.

The court said the move violated rules in the constitution that limit new borrowing to 0.35% of annual economic output. The government can go beyond that if there’s an emergency it didn’t create, such as the pandemic.

The ruling has tied Scholz’s quarrelsome, three-party coalition in knots as the cabinet tries to comply, raising uncertainty about which government programs will be cut.

Scholz said the court ruling, while banning spending in this case, upheld that exceptions to the debt rules were allowed in emergencies. He said the government would keep pursuing its goals of transitioning the economy away from fossil fuels and protecting consumers from higher energy prices.

Analysts say about 15 billion euros had already been spent in this year’s budget, some of it on relief for utility bills.

Finance Minister Christian Lindner has proposed invoking an emergency again this year to bring spending in line. But the bigger problem is the 35 billion to 40 billion euros that the government can no longer borrow and spend next year.

That could mean cuts in the climate and transformation fund, which supports projects that reduce emissions from fossil fuels. Those include renovating buildings to be more energy efficient; subsidies for renewable electricity, electric cars and railway infrastructure; and efforts to introduce emissions-free hydrogen as an energy source.

It also includes support for energy-intensive companies hit by high energy prices and for computer chip production.

“There doesn’t seem to be a strong growth driver in sight,” said Carsten Brzeski, chief eurozone economist at ING bank.

He termed the uptick in the Ifo survey of business managers as “a bottoming out” rather than a rebound.

“This is why we expect the current state of stagnation and shallow recession to continue,” Brzeski said. “In fact, the risk that 2024 will be another year of recession has clearly increased.”

 

[clipartfan92]

Germany is having a budget crisis. With the economy struggling, it's not the best time
Associated Press (archive.ph)
By David McHugh
2023-11-28 05:07:52GMT

FRANKFURT, Germany (AP) — German Chancellor Olaf Scholz vowed Tuesday that his government will work “as fast as possible” to lay out how to solve a budget crisis, but he offered few details on how he would achieve his goals of promoting clean energy after a court decision struck down billions in funding.

With its economy struggling, Germany now is wrestling to fill the gaps in spending set aside for renewable energy projects and relief for companies and consumers facing high utility bills because of Russia’s war in Ukraine. Cuts could further slow what is already the world’s worst-performing major economy.

Germans “need clarity in unsettled times,” Scholz said in a speech to parliament, adding that the government would not abandon any of its goals, which also include promoting investment in computer chip and battery factories for electric cars to modernize the economy.

He said it would be “a serious, an unforgivable mistake ... to neglect the modernization of our country.”

A cap on consumers’ utility bills is no longer needed because energy prices have fallen, although the government would act if they rose again. “You’ll never walk alone,” Scholz said, quoting the song title in English.

Details on what could be cut for next year were lacking. On top of that, a long-term solution could take years, possibly until after the next national elections scheduled for 2025. That’s because the strict legal limits on borrowing cited in the Nov. 15 court decision are enshrined in the country’s constitution, and a two-thirds majority in parliament is required to soften them.

Economists say spending cuts will only add to the challenges facing Europe’s largest economy after Russia cut off the cheap natural gas that fueled its factories, squeezing businesses and raising the cost of living for households paying more for energy.

Germany’s constitutional court has voided some 60 billion euros ($65 billion) in spending for this year and next. It said the government could not shift unused funding meant for COVID-19 relief to boost wind and solar projects, help with energy bills and encourage investment in computer chip production.

The constitution limits deficits to 0.35% of economic output, though the government can go beyond that if there’s an emergency it didn’t create, such as the pandemic.

The ruling also could apply to other national and local spending based on the same now-rejected accounting maneuver, covering as much as 130 billion euros in expected spending through 2027.

Some of the disallowed spending has already been used this year. To comply with the ruling, the government is changing the 2023 budget by declaring an emergency, citing Russia’s cutoff of natural gas supplies and higher energy prices.

The question now is next year’s budget. The government would have to scramble to cover shortfalls of roughly 30 billion to 40 billion euros — plus 20 billion to 30 billion euros for 2025 — compared with earlier plans, according to Holger Schmieding, chief economist at Berenberg bank.

Some spending can be moved to public-private partnerships or taken over by the country’s development bank. But those fudges will only go so far. Ultimately, spending may be reduced by as much as 0.5% of annual economic output for the next two budget years, Schmieding said.

The debt limits were enacted in 2009 after the government piled up debt paying to rebuild former East Germany after Germany reunified at the end of the Cold War and when tax revenue dropped during the 2007-2009 global financial crisis and Great Recession.

For years afterward, Germany balanced its budget or even ran small surpluses as the economy lived large on cheap Russian natural gas and booming exports of luxury cars and industrial machinery, with rapidly growing China serving as a major market. Economists say the government skimped on investment in infrastructure, renewable energy and digitalization — gaps it is now trying to make up.

The fallout has left Germany projected to be the worst-performing major economy this year, shrinking by 0.5%, according to the International Monetary Fund.

Prospects for next year are only a little better. Industry is struggling with energy prices and a lack of skilled labor, while Chinese automakers are challenging Germany’s Volkswagen, BMW and Mercedes-Benz and have plans to expand sales across Europe.

The budget debate is ironic because Germany has the smallest long-term debt pile of any of the Group of Seven advanced democracies, with debt of 66% of gross domestic product. That compares to 102% in Britain, 121% in the U.S., 144% in Italy and 260% in Japan.

The now-banned spending was aimed at some of the long-term problems plaguing economic growth, such as the need to invest in new sources of affordable renewable energy like wind, solar and hydrogen. That has led to calls from some to loosen the debt limits because they restrict the government’s response to new challenges.

But Scholz’s coalition of Social Democrats, Greens and pro-business Free Democrats doesn’t have the two-thirds majority to do that without the conservative opposition, the Christian Democrats, who brought the legal challenge in the first place.

Yet even some opposition state governors have said the debt limits should be loosened. Berlin Mayor Kai Wegener, a member of the Christian Democrats, said the provision was “a brake on the future.”

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after Russia cut off the cheap natural gas that fueled its factories

I'm pretty sure they would have completed that maintenance and happily sold gas to the Germans again, if the West didn't blow the pipeline up. Convenient that the article totally skips over that fact.

 

[Super-Chevy454]

To be wasted on green pet issues? Good.. Maybe there is some sense left in Germany.

Yeah, unlike some other countries. I won't be surprised if France, UK or Canada tried to do the same.

 

[wtfNeedSignUp]

God forbid a government actually uses its money to fix shutting down the economy during COVID and return money to the people, better wasting the money on chasing literal windmills.

 

[Fruttasecca]

Just stop handing out gibs ffs.
And no its not just the niggers its everybody. If you dont work you dont eat, easy as.

 

[MadStan]

It is strange how you read how consumers in Germany pulled back with the rising costs of capital and debt; and yet in the United States consumers said "fuck it" and are going to town and be damned the debt and interest rates.

The German Debt would be a blessing here given that it would be 12 Trillion if you increased the population to the size of the USA. Versus our 30 Trillion.

And yet this is case for alarm for them when it is 40% the size of ours. They say this year will see record consumer spending in the USA with the greatest drop in savings witnessed coupled with the highest ever personal and government debt burden ever seen.

It is sort of like flying so far past the airport you know you've not enough fuel to make it back so you break out the mini bars and enjoy the remainder of the trip.

 

[Shark Senpai]

Had Germany gone nuclear, it wouldn't be in this position.

They did have a decent amount of nuclear for a while just like France. Then rather than continue investing in it they gave it up when the plants started getting old and went all in on green shit as a replacement instead.

Spoiler: German Energy by sources

Spoiler: French Energy by sources