German budget challenges could affect EU budget, debt rules, industrial policy – media report

The consequences of Germany's current budget struggles will have implications on the European Union, but the extent of the impact will depend on decisions taken by the ruling coalition government, wrote journalist Till Hoppe in an article on Table.Media. At the EU level, the judgement by Germany's top court declaring parts of the government's budget plans unconstitutional could affect the increase of the current (and next) Multiannual Financial Framework (MMF), the ongoing reform of debt rules, the common industrial policy, and the bloc's climate targets. For example, the European Commission is demanding an additional 100 billion euros from the member states for the current MMF to respond to Russia's war in Ukraine, inflation, and the challenges posed by migration. However, Germany already stated in October that it only supports the aim of paying 50 billion euros in EU support to Ukraine over the next four years, while the rest of the money should be found through reshuffling budgets and making savings at the EU and member state level. This position is now unlikely to change, Hoppe wrote. Wiggle room for the next financial framework would shrink too, with a new German government likely to be much more reluctant to transfer more money to Brussels.

Finding a compromise on debt reduction at the EU level might also become more difficult if Germany insists on fixed rules as a result of the court's ruling, according to Hoppe. If German industrial projects due to be financed through the special Climate and Transformation Fund fall through due to lack of subsidies, this could also jeopardise investment in neighbouring countries. The ruling could also set back climate action in the bloc, as the fund was set up to specifically "promote measures that serve to achieve climate targets."

The government faces difficult decisions over how to plug a 60-billion-euro gap in its special fund for climate and transformation. This follows a constitutional court ruling which declared that the coalition's plan to use money initially dedicated to respond to the coronavirus pandemic to fill Germany’s long-term Climate and Transformation Fund was unconstitutional.