In the wake of the Karlsruhe budget ruling, Hamburg's mayor, Peter Tschentscher, has sounded the alarm against the federal government sidestepping its financial pledges towards the federal states. Tschentscher, addressing Welt TV, stressed that commitments such as the two billion euros allocated for daycare centers, digital school initiatives, and Deutschlandticket financing shouldn't be swept under the carpet by the feds.
The muddy waters of the budget crisis emerged from a ruling by Germany's Federal Constitutional Court on November 15, which invalidated a 60 billion euro loan reallocation in the 2021 federal budget. The ripples of this judicial decision reached even Schleswig-Holstein, which declared a budget emergency for both the current and upcoming financial years. The state has been relying on emergency loans since the COVID-19 pandemic hit. In light of the emergency label, funds from coronavirus and Ukraine relief loans can be utilized for hospital financing or school constructions, as planned.
As other federal states may succumb to declaring budget emergencies, Tschentscher predicts their imminent mass exodus. He, however, is optimistic about Hamburg’s financial situation, as the city holds substantial surpluses. Yet, even for Hamburg, financial planning will become a necessity.
Tschentscher underlined his stance against shifting the federal government's financial obligations to the states. The precarious financial state of many federal states due to the budget crisis might spark similar concerns among households, necessitating careful budget management.
The German government has been grappling with an intense turbulence, with the collapse of the government in November 2024 forcing out Finance Minister Christian Lindner. The instability has disrupted measures intended to stimulate economic growth, resulting in plummeting growth expectations for 2025. This economic downturn is primarily due to the collapse of the government and heightened trade risks with the U.S., with President Donald Trump back in the White House.
Germany's public debt is on a sharp uptrend, climbing to 2,488.6 billion euros by the end of the third quarter of 2024, a 1.8% rise from 2023. This surge was led by the federal government's liability growth (1.3%) and a 2% increase in Laender debt, with states like Mecklenburg-Western Pomerania witnessing a steep debt escalation.
The exploration of debt policy reforms can provide breathing room for German borrowing requirements, with the intention of maintaining debt sustainability under European law. However, this reform may not immediately address the crisis-induced financial shortcomings.
