Karlsruhe and the German Climate Fund

Miguel Azpitarte

5 mins - 27 de Noviembre de 2023, 07:00

The facts behind the Federal Constitutional Court’s ruling are clear. In 2021, the government had obtained parliamentary authorisation to issue €60 billion worth of debt, which was to be used to combat COVID. However, at the end of the budget year and given that the economic needs resulting from the pandemic were lower than expected, the government decided in February 2022, retroactively, to use this authorisation to finance a special fund to combat climate change and promote economic transformation (henceforth the fund).

The fund has a major political significance. The Jamaica coalition (social democrats, greens, and liberals) had found its raison d’être in it. The massive investment responded to the classic social democratic approach of boosting the economy through public investment; the liberals accepted this premise, as it strengthened market productivity, while private enterprise would implement the fund; and the Greens had managed to fit the purposes of spending perfectly into an environmental rationale. Thus, the fund had succeeded in filling the public space with a clear and understandable objective for citizens.

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It is therefore understandable that the CDU/CSU opposition, having lost the political battle, tried to block its way in the Constitutional Court. To this end, it demanded compliance with the principles of budgetary stability and financial sustainability. In the third point, I will explain that this move is definitely opening up an ideological debate that goes beyond the German border. But first, let us dwell briefly on the arguments of the ruling.

The German Basic Law prohibits structural deficits, although it leaves a certain margin linked to the evolution of the cycle and, what is of interest now, provides for an exception in the event of natural disasters or emergency situations. This is the pattern that has been imposed in those states that, like Spain, have constitutionalised these rules, following the guideline set in 2012 by the Treaty on European Union Governance, which recommended that balanced budgets should be enshrined in provisions “preferably of constitutional rank” (however, it is important to stress that the German reform dates from 2009, and therefore predates the Treaty, which it clearly influenced). 

Given this normative presupposition, the Court understands that there must be a factual connection between the emergency that would justify the authorisation and the measures to manage it. This link does not exist in this case because the purposes of the fund (climate change, economic transformation, and digitalisation) serve no purpose in combating the pandemic. 

Moreover, according to the Court, the authorisation of the extraordinary appropriation must be valid for the duration of the budget year; once this has expired, the authorisation must be requested again. It is not possible, says the Court, to separate the emergency authorisation from the period in which the appropriations obtained are spent. It would also be the case that such a transfer into the future would lead to the permitted deficit being exceeded in future years.

Finally, transferring appropriations in 2022 from the 2021 budget would breach the constitutional obligation to adopt the budget before the beginning of the year. It is certainly possible to supplement appropriations during the course of the budget year. But the Court rejects that it is possible after the end of that period. If such amendments were allowed, the budget would lose its political function of planning and guiding public finances. 

Of course, the ruling is a crucial limit to the traditional power of the majority government to conduct economic policy. And there is no doubt that, at least in the short term, it puts the coalition in serious difficulty as it seeks funding for its flagship plan. Nonetheless, the judgement is limited, without interpretative excesses, to updating the constitutional limits that the two major German parties considered relevant a little more than a decade ago. A circumstance that makes it necessary to open the field of reflection.

The political sense of the fund goes beyond the German conjuncture. On the one hand, it materialises the mantra of the moment, as the spending targets are, broadly speaking, instruments to boost new forms of mobility and energy supply. On the other, it rescues the axiom of public investment as an economic driver from its ostracism. These two elements represent a significant nuance to the model that has dominated in Germany since the Hartz reform of former Social Democrat Chancellor Schröder (1998-2005). Recall that, through the transformation of the labour market, he managed to contain wages and thus a substantial gain in competitiveness. Then, the grand coalition led by Merkel gave continuity to Germany’s renewed productivity through balanced budgets and financial sustainability. The ecstasy of this idea was such that it would eventually become a constitutional rule in 2009. And by virtue of Germany’s weight in the Union, it was taken as a yardstick for resolving the euro crisis.

We know all too well the meaning of austerity: competitiveness in exchange for poverty. The Union’s response to the pandemic, deploying massive spending financed by communitised debt, changed the pace, even temporarily. However, the Constitutional Court’s ruling reminds us that the political principles of neoliberalism are anchored at the heart of our legal systems and anyone seeking to change them will need a great political force. And this wake-up call comes at a time when the debate is raging in the Union on how to maintain budgetary rigour without stifling the economy. In my opinion, the discussion is of great depth, and it is partly the only way to neutralise the pressure of populism that threatens constitutional democracy.
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