The German government’s attempt to re-allocate 60 billion euros ($65 billion) of unused pandemic debt to fund green initiatives and industry support has been blocked by a court ruling last week. This has left a huge gap in the federal budget and triggered warnings of a disaster for the restaurant sector, which is already struggling with the effects of the COVID-19 crisis.
The court decision has also increased tensions in the coalition government of Chancellor Olaf Scholz, which consists of the Social Democrats (SPD), the Greens, and the Free Democrats (FDP). The Greens want more spending to tackle climate change and boost the economy, while the FDP opposes additional debt and higher taxes.
The government had planned to use the 60 billion euros from the emergency debt to create a Climate and Transformation Fund, which would finance projects such as green steel, green chemicals, hydrogen, battery cell production, and semiconductor production. These projects are seen as crucial for ensuring value creation and jobs in Germany, as well as meeting the country’s climate goals.
However, the court ruled that the government had violated the constitutional debt brake, which limits the amount of new borrowing the federal government can take on. The court said that the emergency debt was only allowed for pandemic-related spending, and that the government had to seek parliamentary approval for any other use of the funds.
Restaurant industry faces existential threat
The court ruling has dealt a severe blow to the restaurant industry, which was hoping to benefit from the government’s green spending plan. The industry has been hit hard by the pandemic, with lockdowns, capacity restrictions, staff shortages, and supply chain disruptions. According to the German Hotel and Restaurant Association (DEHOGA), more than 10,000 restaurants have closed permanently since the start of the pandemic, and more than 300,000 jobs have been lost.
The industry had hoped that the government would use some of the 60 billion euros to extend the reduced value-added tax (VAT) rate of 7% for the hospitality sector, which is due to expire at the end of the year. The reduced VAT rate was introduced in July 2020 as a temporary measure to help the industry cope with the pandemic. The industry argues that the measure has helped to save thousands of businesses and jobs, and that it should be made permanent.
The industry also hoped that the government would use some of the funds to support the transition to a low-carbon economy, by providing subsidies for energy-efficient appliances, renewable energy sources, and electric vehicles. The industry says that these measures would help to reduce greenhouse gas emissions, lower energy costs, and improve competitiveness.
However, the court ruling has dashed these hopes, and the industry fears that it will face a collapse in the coming months. The industry has urged the government to find a solution to the budget crisis, and to provide more financial aid and tax relief for the sector.
Government seeks alternative sources of funding
The government has said that it respects the court ruling, and that it will work to find alternative sources of funding for its green spending plan. Finance Minister Christian Lindner said that the government will not take on more debt or raise taxes, but will look for other sources of income, such as privatizations, asset sales, or dividends from state-owned enterprises.
Lindner also said that the government will not abandon its commitment to Intel, the U.S. chipmaker, which plans to build two chip-making plants in Germany with subsidies worth nearly 10 billion euros from the federal government. Lindner said that the government will honor its agreement with Intel, and that the project is vital for Germany’s economic security and technological sovereignty.
Economy Minister Robert Habeck, from the Greens party, said that the government will also look for ways to cut some of the planned expenditure for the next year, without compromising on the climate goals or the social welfare. Habeck said that the government will prioritize the most urgent and effective measures, and that it will seek consensus among the coalition partners.
Habeck also said that the government will appeal the court ruling, and that it will seek a constitutional amendment to allow more flexibility in the use of the emergency debt. Habeck said that the court ruling was based on a narrow interpretation of the constitution, and that it did not take into account the extraordinary circumstances of the pandemic and the climate crisis.
