Scholz-Court Ruling On Climate Fund Will Impact Federal, State Budgets

Germany's Chancellor Olaf Scholz, Economy Min Robert Habeck, and Finance Min Christian Lindner holding a joint presser following the German Constitutional Court's verdictthat ruled against the gov't shunting EUR60bn of climate change spendinginto an off-book fund. Scholz: "We will continue our budget process as planned...Ruling requires careful study not a kneejerk reaction..,Ruling has immediate consequences for climate fund, its EUR60bn no longer available."

• Lindner: "Verdict has potentially large impact on federal and state budgets...Verdict creates clarity for debt brake rule....[the court] has blocked Climate and Transformation Fund (KTF) plan except measures on energy efficiency."
• Habeck: "All promised commitments from the KTF fund will be honoured."
• BBG: "Evelyne Gomez-Liechti, a strategist at Mizuho International, said the decision could lead to an adjustment of the funding needs for the KTF that means lower than expected debt issuance for 2024 and beyond."
• The issue of the debt brake and budgets is one of the major points of contention in the tripartite 'traffic light' coalition. Scholz's Social Democrats and Habeck's Greens seen as much more comfortable with less stringent borrowing rules, whereas Lindner's pro-business liberal Free Democrats are staunchly committed to the debt brake and fiscal rectitude.
• There have previously been calls for Lindner to pull his party out of gov't, but this ruling could calm those waters as the Fin Min can argue the debt brake remains intact.