The top court in Germany overturns a ruling to reallocate COVID relief funds for climate-related initiatives

16 Nov, 2023

The top court in Germany overturns a ruling to reallocate COVID relief funds for climate-related initiatives

Germany's highest court dealt a blow on Wednesday by overturning the government's decision to reallocate 60 billion euros ($65 billion), initially designated for addressing the economic impact of the coronavirus pandemic, towards climate change efforts and the country's modernization. This ruling poses a significant challenge for Chancellor Olaf Scholz's contentious coalition.

Originally incorporated into the 2021 budget due to the COVID-19 crisis, the funds were later redirected by Scholz's center-left coalition in 2022 to the "climate and transformation fund." The rationale was that investing in climate protection measures would aid economic recovery. However, this move faced opposition from the main conservative opposition bloc, contending that it circumvented Germany's "debt brake" regulations. Subsequently, 197 lawmakers filed a complaint with the Federal Constitutional Court.

The court declared the government's action unconstitutional, mandating the search for alternative ways to fill the gap in the climate fund. Germany's "debt brake," in place for over a decade, limits new borrowing to 0.35% of annual GDP, except in emergencies. The pandemic prompted a temporary suspension of these rules from 2020 for three years to enable substantial borrowing for support packages.

Finance Minister Christian Lindner, representing the pro-business Free Democrats, advocated stringent adherence to debt rules. Tensions over finances have been a recurring theme in the coalition, which includes Scholz's Social Democrats and the Greens.

In response to the court ruling, Scholz, Lindner, and Vice Chancellor Robert Habeck pledged unity, vowing to reassess plans for the climate fund swiftly. Lindner temporarily halted existing fund plans, excluding measures promoting energy efficiency and renewable energy in buildings.

The government had allocated 211.8 billion euros for the climate fund over the next four years, supporting hydrogen industry development, railway infrastructure improvement, electric vehicle transition, and building renovations. The ruling drew criticism from environmental group Greenpeace's German branch, characterizing it as a setback for climate protection and denouncing the government's financial tactics for the economy's climate-neutral transformation.