(Bloomberg) -- Germany is exploring a drastic overhaul of its federal budget for this year, including relaxing restrictions on net new debt, following last week’s ruling by the country’s top court, according to people familiar with the discussions.
Judges said that unused debt authorizations can’t be transfered into an off-budget fund for initiatives like greening manufacturing and expanding solar power. The ruling is likely to affect other such special funds, including one that pays for measures to ease the burden on households and companies from high energy prices.
If officials conclude that the judgment also applies more broadly, as expected, Finance Minister Christian Lindner will have to retroactively account for at least €30 billion of new debt in a revised 2023 federal budget, said the people, who asked not to be identified as the discussions are confidential.
As a result, Lindner would be forced to drop his plan to restore constitutional rules limiting new borrowing known as the debt brake, a key policy of his pro-business Free Democratic party, the people added. The constitution allows for the mechanism to be suspended during times of crisis, which the government recently did for three years to help deal with the fallout from the Covid-19 pandemic and the surge in energy prices.
Spokespeople for Lindner’s ministry declined to comment directly, referring to responses given at Monday’s regular government news conference.
A finance ministry spokesman said there that officials are still examining the ruling and it’s too soon to say what the government will do to implement it. Chancellor Olaf Scholz’s spokesman, Steffen Hebestreit, said that analysis of the “complex legal ruling” would “certainly take some more days.”
As well as upending the governing coalition’s budget policy, the court’s judgment has prompted renewed debate about the debt brake, with some lawmakers from Scholz’s Social Democrats and the Greens calling for it to be temporarily set aside again.
Read More: Bundesbank Says Germany Must Respect Constitutional Debt Brake
Greens Economy Minister Robert Habeck said earlier Monday that curbing the use of off-budget funds will have “massive implications” for Germany’s transformation to a cleaner and more technologically advanced economy and could lead to higher energy costs for households and companies.
Habeck, who is also the vice chancellor, said that while he believes that the debt brake is “inflexible,” he is also aware that the constraints of the coalition with the FDP limit room for maneuver. Asked if suspending the debt brake again is the right move, he said it’s too early to say and declined to “speculate.”
Although officials from Lindner’s FDP have fiercely defended the debt rules, the minister did not rule out their renewed suspension when asked specifically about such a scenario in a weekend newspaper interview.
“I am not taking part in speculation,” Lindner told Bild am Sonntag. “The government is examining the consequences of the ruling.”
Lindner faces additional pressure over the fund that holds the money for addressing high energy prices, known as the WSF. The main opposition conservatives, who filed the suit that led to Wednesday’s decision, have threatened to lodge a similar challenge to the legality of the WSF at the Constitutional Court.
Saskia Esken, a co-leader of Scholz’s Social Democrats, told Funke media group at the weekend that the government will likely have to suspend the debt brake in both 2023 and 2024.
She also called for a broader loosening of fiscal rules, which will be one of the party’s main pledges for its 2025 election campaign.
The coalition would need the support of the conservatives for such a move, as a two-thirds majority in parliament is required to make changes to the debt brake. Suspending it requires a simple majority.
--With assistance from Arne Delfs.
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