Germany Imposes Unprecedented Budget Freeze

Welcome to the Brussels Edition, Bloomberg’s daily briefing on what matters most in the heart of the European Union.

Germany imposed an unprecedented spending freeze after the country’s top court ruled last week that the use of €60 billion of pandemic aid to finance climate protection was unconstitutional. The Finance Ministry stopped the commitments in 2023 in order to avoid up-front burdens for future years, we’ve been told. Existing liabilities will continue to be honored, but no new ones are allowed to be undertaken — commitment appropriations can only be unblocked in exceptional cases, the officials added. The move is the most drastic sign yet of the fallout from the court decision, which has thrown Chancellor Olaf Scholz’s fractious three-way coalition into a state of emergency. Should that judgement apply broadly, Finance Minister Christian Lindner from the pro-business Free Democrats will have to retroactively account for at least €30 billion of new debt in a revised 2023 federal budget. Vice Chancellor Robert Habeck from the Greens said last week’s ruling is a major blow for Europe’s biggest economy. The Bundesbank warned yesterday that the government shouldn’t try to evade new borrowing by tapping fiscal loopholes.