Bundestag Lifts Debt Brake for 2023 due to Constitutional Court Ruling
In a move that's become something of an annual tradition, the German Bundestag has decided to suspend the debt brake – a constitutional restriction on government borrowing – for the fourth year in a row. This time around, the decision was made with a majority of 414 votes in favor, 242 against, and nine abstentions. The reason? An extraordinary situation resulting from the war in Ukraine, which allows for such exceptions as per the German Basic Law.
This suspension is a prerequisite for the passage of a supplementary budget for 2023. This budget, to be approved this morning, will reorganize the legal basis for loan financing related to energy price subsidies from the WSF crisis fund. Previous credit authorizations expired due to a ruling by the Federal Constitutional Court, so this supplementary budget aims to fill that gap.
With this budget, the federal government will exceed the borrowing limit set by the debt brake by 44.8 billion euros, with 70.6 billion euros in planned new borrowing. Breaking this down, 43.2 billion euros will go towards energy price subsidies for gas, district heating, and electricity, while around 1.6 billion euros will be earmarked for flood relief after the 2021 Ahr valley disaster.
The Constitutional Court, however, has ruled that loans taken out under the suspension of the debt brake can only be used in the year the emergency was declared. Consequently, the court canceled 60 billion euros that the Ampel government had transferred to the Climate and Transformation Fund (KTF) from coronavirus loans.
Further Reading:
The suspension of the debt brake in the German Bundestag opens the door for the consideration of a supplementary budget in 2023. This budget is essential to legally justify the financing of energy price aid through the WSF crisis fund, as previous credit authorizations have expired due to a ruling by the Federal Constitutional Court.
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Enrichment Insights:
The debt brake suspension in Germany in 2023 was prompted by a ruling by the Constitutional Court, which deemed a significant part of the outgoing coalition government's funding plan for climate and energy programs unconstitutional. Specifically, the court disapproved of the reallocation of 60 billion euros from the pandemic relief fund to the Climate and Transformation Fund (KTF) in November 2023. This ruling precipitated a severe budgetary and political crisis, eventually leading to the end of the coalition government.
The supplementary budget serves to meet the urgent need for new investments, particularly in areas such as climate, defense, and infrastructure. The debt brake suspension during the COVID-19 pandemic and the war in Ukraine already allowed for additional spending, and there's growing support for relaxing the debt brake to accommodate these investments. However, achieving a permanent change or abolition of the debt brake requires a two-thirds majority in the Bundestag, while a temporary suspension like this one can be achieved with a simple majority. The next government will likely face intense debate over the delicate balance between the debt brake and the need for new investments, with many advocating for a relaxation of the rule to support critical spending.
