Civil society groups ring alarm over debt brake's impact on Germany's ability to navigate transition

An alliance of civil society groups has issued an appeal to the German government to not implement planned cuts in the 2025 budget and avoid damage “to the economic, ecological, and social stability of our country.” The alliance that includes environmental protection groups, labour unions, church organisations and others, warn that the debated funding cuts in climate action, economic and industrial transformation, social support, and many other areas threaten to strip the state of its capability to act on key fields. The cuts resulted from last year’s court ruling on the country’s debt brake, a constitutional limit on new government borrowing. “We demand a change of course in financial and budget policy from the government and from the democratic opposition: Stop the planned cuts and reform the debt brake!” the groups said. Democratic principles are increasingly under strain, a trend that could be exacerbated if much-needed investments are pulled and funding for environmental protection, infrastructure, and social support are played off against each other, they argued.

Responsible parties in parliament must work towards planning security for critical investments that ensure prosperity and well-being in the future, the alliance argued. However, the cuts already implemented for 2024 showed that this reversal appears to be already be happening. “Key projects, for example the expansion of rail transport, the transition in the heating sector and industry decarbonisation hang in the balance,” while the economy faces a recession and companies fear that their competitiveness on is at stake. Continuing on a path of austerity looks set to intensify uncertainty among investors and will make it more difficult for the economy to adapt to the transformation towards climate neutrality and excel in future industries, the group said. At the same time, citizens reeling from the effects of inflation and other financial shocks could not be left out in the cold due to lower social support payments. “Modernising the country is the aim of all democratic parties. This promise cannot be kept by entrenching austerity into our planning.” Instead, democratic parties should raise the national debt limit and allow for special funds to finance projects for climate action, transformation, and social security.

A ruling by Germany's highest court in November 2023 declared an integral part of the government's funding plan for climate and energy programmes unlawful, dealing a major blow to the Olaf Scholz’s coalition government. The court's decision has thrown the coalition's funding plans through a special "Climate and Transformation Fund" worth 60 billion euros into disarray, causing major uncertainty among policymakers, industry and citizens waiting to implement new projects.