(Bloomberg) — Germany’s financial crisis has exacerbated following the imposition of a halt on emergency expenditures by the Finance Ministry in response to last week’s verdict by the top court in the country.
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The governing coalition led by Chancellor Olaf Scholz is grappling with the ramifications of the ruling by the Constitutional Court, which casts doubt on the funding of special funds amounting to hundreds of billions of euros that are not included in the regular federal budget.
The Finance Ministry in Berlin took the initiative on Monday to freeze almost all authorizations for new spending for this year as it endeavors to ascertain the broader and longer-term consequences, as per government officials who spoke on the condition of anonymity in accordance with briefing regulations.
The statement specified that existing liabilities would be honored, but new commitments might only be unblocked under exceptional circumstances. This decision is applicable to all federal ministries, while both houses of parliament and constitutional bodies such as the Constitutional Court are the only exemptions.
The judges decreed on Wednesday that unused loan authorities designated for combating the pandemic cannot be reallocated to a fund for projects like sustainable manufacturing and the expansion of solar energy.
Read more: Key warning by the German economy chief on the significant impact of the budget ruling
According to Economy Minister Robert Habach, it is expected that the ruling will also affect other special funds, including the one that covers initiatives to alleviate the impact of high energy prices on households and businesses.
If the officials reach the anticipated conclusion that the ruling has a broader scope, Finance Minister Christian Lindner will have to retrospectively justify a minimum of €30 billion in new debts in the revised federal budget for 2023, as indicated by sources familiar with the discussions in conversation with Bloomberg on Monday.
Consequently, he will be compelled to abandon his plan to reinstate constitutional regulations limiting new borrowing, known as the debt brake, which is a vital policy of his pro-business Free Democratic Party.
Germany has around 29 similar off-budget funds totaling roughly €870 billion, with the exception of the €100 billion allocated for military spending, which is unlikely to be impacted as it is enshrined in the constitution.
The budget lawmakers are scheduled to finalize the federal budget for the next year this week and will convene with experts in Berlin on Tuesday to deliberate on the court’s ruling.
–With support from Michael Nienaber.
(Commencing with additional information in the first paragraph)
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