Germany is considering a drastic overhaul of its federal budget for this year, including easing restrictions on net new debt, following a ruling last week by the country’s top court.

Photo collage of the flag of Germany in the background and in the foreground coins and euro banknotes

Germany wants to revise its monetary policies for this year Photo: Shutterstock

Last week, judges said unused debt authorizations could not be transferred to an extrabudgetary fund for initiatives such as greening production and expanding solar power. The ruling is likely to affect other such special funds, including one that pays for measures to ease the burden of high energy prices on households and businesses, Bloomberg reports.

If officials conclude that the ruling applies more broadly, as they expect, Finance Minister Christian Lindner will have to retroactively book at least 30 billion euros of new debt in a revised federal budget for 2023, said the people, who asked not to be identified because the discussions are confidential.

As a result, Lindner would be forced to abandon his plan to restore constitutional rules limiting new borrowing, known as the debt brake, a key policy of his pro-business Free Democratic Party, the people added. The constitution allows the mechanism to be suspended in times of crisis, which the government recently did for three years to deal with the consequences of the Covid-19 pandemic and rising energy prices.

Spokesmen for Lindner’s ministry declined to comment directly, referring to responses given at the government’s regular press conference on Monday.

A Finance Ministry spokesman said there that officials were still reviewing the ruling and that it was too early to say what the government would do to implement it. Chancellor Olaf Scholz’s spokesman, Steffen Hebestreit, said he was looking into it “complex legal decisions” will it last “definitely a few days“.

As well as overturning the ruling coalition’s budget policy, the court’s ruling sparked a new debate over the debt brake, with some MPs from Scholz’s Social Democrats and the Greens calling for it to be temporarily set aside again.

Greens economy minister Robert Habeck said earlier on Monday that limiting the use of extrabudgetary funds would have “massive implications” to transform Germany into a cleaner and more technologically advanced economy and could lead to higher energy costs for households and businesses.

Habeck, who is also vice chancellor, said that while he believes the debt brake is “inflexible”, he is also aware that the constraints of the coalition with the FDP limit the room for manoeuvre. Asked if suspending the debt brake again was the right move, he said it was too early to tell and declined to “speculate“.

Although officials in Lindner’s FDP fiercely defended the debt rules, the minister did not rule out a further suspension of them when asked specifically about such a scenario in a newspaper interview over the weekend.