What Europe needs to learn from the German debt brake fiasco
(Transport and Environment, 1 Feb 2024) Financing the green transition and on-shoring a robust industrial base in Europe will require massive public and private investments. Germany's recent budget crisis forebodes a similar budget crisis at European level. It is high time to change track and develop an ambitious climate investment plan in Europe.
The German Supreme Court ruled in early November against the government’s transfer of a €60 billion emergency COVID-19 package to a fund backing projects such as electric vehicle battery production or microchip factories.
The basis for this ruling is the debt brake restricting federal budgetary deficit to a mere 0.35% of GDP, as enshrined since 2009 into the German constitution. Chancellor Scholz rightfully reacted that massive investments are more needed than ever to foster the green transition. Still, the government had to urgently suspend the debt brake and agree on a new 2024 budget including major cuts in spending programmes in favor of the green transition – from subsidies to electric vehicles to e-kerosene production.
Beyond the risk of failing to reach climate goals, alarm bells are ringing: if a major economy like Germany stops spending, an impending recession is in sight. As the Organisation for Economic Cooperation and Development (OECD) warned in late November, Berlin’s budget crisis could hamper the entire European economy in the coming years.