German states fear debt brake’s climate impact as federal gov’t suspends rule again

Governments in Germany’s federal states are concerned that the recent ruling by the country’s highest court declaring parts of the federal government’s budget planning unconstitutional might impact the funding of state projects as well. While the loss of 60 billion euros planned for the federal government’s Climate and Transformation Fund (CTF) does not directly touch upon the state governments’ budgets, many projects are built on the assumption that the federal government will co-fund them with money from the CTF. Andreas Dressel, finance senator of the city state of Hamburg, said “compensating for the loss in federal funds by using Hamburg’s budget will generally not be possible due to the dramatic financial situation,” newspaper Die Welt reported. According to state government colleagues of the Social Democrat (SPD) politician, this could impact plans for a hydrogen grid for industry in the northern port city or the conversion of a former coal plant into a hydrogen production site, for example.

The mayor of city state Berlin, conservative Christian Democrat (CDU) politician Kai Wegner, said that while the so-called debt brake to cap new government lending was a good concept in principle, its current interpretation made it a “future brake.” Wegner said there would be certain “mega demand” areas for funding, which include climate action, the energy transition or mobility. “Without investments, our future will be crumbling,” he warned in an interview with news magazine Stern. In the northern state of Schleswig-Holstein, parliament adopted a motion by the CDU-led government for declaring a financial emergency in 2023 and the following year to circumvent the rule. The funds are supposed to finance projects that include a battery factory built by Swedish company Northvolt, public broadcaster NDR reported.

The federal government’s finance minister, meanwhile, said that Germany as a whole will suspend the debt brake rule in 2023 again, as it already did in previous years due to the coronavirus pandemic. Christian Lindner from the pro-business Free Democrats (FDP) said the step was necessary to ensure the implementation of policies, such as the energy price relief for households and companies introduced in response to the energy crisis. The government would have to transfer money from the CTF into the core budget, meaning it can no longer remain within the debt brake’s ceiling of 0.35 percent of GDP in new lending, newspaper Süddeutsche Zeitung wrote. “I consider it my task to wipe the slate clean,” Lindner said, arguing this was necessary to put the energy price brakes on a constitutionally sound footing.