'We won't survive': court's €60bn climate budget bombshell threatens Germany's green agenda

Germany’s constitutional court this week in one stroke crushed much of the government’s climate policy and energy transition financing for the coming years and may even have endangered Chancellor Olaf Scholz’s already strained three-way coalition.

The court ruled on Wednesday that redirecting €60bn ($65bn) of unused credit authorisations originally destined for emergency measures to fight the Covid-19 pandemic and its economic fallout into a climate and transformation fund was unconstitutional.

To guarantee a balanced budget, Germany’s ‘Schuldenbremse’ (debt brake) – its constitutionally anchored zero-debt clause – stipulates that the federal government must not take on more fresh debt than 0.35% of GDP in any given year unless there is a natural disaster or other extraordinary emergency situation. The clause had been suspended during the Covid years, but now is in full force again.

'Shadow budget'

The climate and transformation fund in the past two years had worked like a kind of shadow budget, allowing Green Party economics and climate minister Robert Habeck to finance energy transition policies otherwise blocked by FDP finance minister Christian Lindner, who is wary of his left-leaning coalition partners' spending inclinations and insists on religiously sticking to the ‘debt brake’.

“If this lawsuit is successful, it would hit Germany really hard in terms of economic policy, probably so hard that we won't survive,” Habeck had said before the ruling. It was unclear whether he meant the country, or his government, wouldn’t survive.

To find the money needed to substitute the missing funds, the government could either raise taxes, cut other budget items or scrap subsidies in other areas.

“Loans, new taxes and the reduction of climate-damaging subsidies must not be taboos,” Greenpeace Germany managing director Martin Kaiser said, a demand echoed by Social Democrat and Green politicians, but abhorred by the FDP.

Germany, for example, is dishing out several billions of euros to support fossil-fuelled company cars that are also in private use. The Greens for years have been trying to abolish that subsidy, but the FDP regularly blocks that.

The Liberals are also against any softening of the balanced budget policy.

The FDP is “known to be a defender of the debt brake”, the party’s leader in parliament, Christian Dürr stressed immediately after the constitutional court ruling came out.

Impasse looms

It is unclear what will happen if no one gives in.

The FDP, traditionally a part of the better-off and self-employed, is unlikely to budge, also as in opinion polls it hoovers around the 5% threshold of voting intentions needed to re-enter parliament.

The Greens meanwhile are already allergic to the FDP’s blockade policies, which earlier this year had trashed great parts of Habeck’s ‘heating law’, a legislation to swap fossil fuel boilers for heat pumps or other renewable heating systems. The in part polemic and populist controversy around the heating law was disastrous for the Greens' popularity and led to painful defeats in recent elections in two key Western German states – Hesse and Bavaria.

Scholz’s SPD was equally battered in the elections and is trying to sharpen its social policy profile and ever more eager to rebel against Lindner’s zero debt and anti-tax-raising policy.

With all three governing parties shrinking in the polls (and the FDP threatened in its existence), increasingly bitter coalition spats are pre-programmed.

A puzzled Scholz calmly noted the government would “closely observe and evaluate” the court ruling but no one really believes his tranquillity in Berlin. Germany is likely to see increasing government infighting that could lead to its demise long before the next general election in 2025.