MNI BRIEF: German Court Rules Against EUR60 Bln Fund Transfer

In a blow to Olaf Scholz’s “traffic light” coalition government, Germany’s Constitutional Court on Wednesday struck down an attempt to transfer EUR 60 billion borrowed in response to the Covid-19 pandemic to a special fund seen as key to transforming the country’s economy.

The decision to reallocate unused funds from the 2021 fiscal year to the Energy and Climate Fund, later renamed the Climate and Transformation Fund allowed policymakers to circumvent Germany’s so-called debt brake, which sets strict limits on government borrowing. Some economists had predicted the court would adopt a "pragmatic" position, with a complete rollback signalling "really serious trouble" for Berlin. (see MNI INTERVIEW: German Court Threatens EURO 180bn Spending Plan180bn Spending Plan).

However, on Wednesday the Bundesverfassungsgericht ruled the move was incompatible with the Basic Law, and said its decision “means that the volume of the Climate and Transformation Fund is reduced by EUR60 billion. Insofar as the state has entered into obligations that it can no longer service as a result of this reduction, the legislator must compensate for this through other means.”