Go green, go bankrupt?
Germany’s promise of a ‘green economic miracle’ has turned into a devastating budget crisis.
The German government’s green agenda could be in serious trouble.
In November, Germany’s supreme court declared that it would be unlawful for the government to use emergency Covid-19 funds to pay for its transition to Net Zero. This prompted the coalition to announce last week that it may not be able to produce a 2024 budget by the end of this year. Public spending for the rest of 2023 has been frozen.
There is now a chance that the 2024 budget may indeed be ready this week. But the fiasco has nonetheless been deeply embarrassing for chancellor Olaf Scholz. The supreme court ruling has made a mockery of Scholz’s promise to spend billions on new ecological projects to support Germany’s flailing economy. Earlier this year, Scholz was claiming that Germany would experience an economic miracle fuelled by investment in new wind turbines, electricity grids, hydrogen power and subsidies for chip and battery production. That has now been exposed as just so much hot air.
This budget crisis poses huge problems for the government and its Net Zero agenda. Back in 2022, the coalition had intended to plug a €60 billion gap in the budget with funds that had been set aside to deal with the cost of the Covid pandemic and lockdowns. This €60 billion was to be repurposed to cover part of the immense costs of its green-energy transition plan. Doing so would have allowed the government to pretend that the Net Zero transition would place no additional burden on the taxpayer, and therefore dodge any parliamentary and public debate about its green policies.
It’s hardly surprising that the government’s budgetary trick has now been ruled unconstitutional. One reason the court gave is that emergency funds must be used for the purpose they were set up for. Another is that the ‘special budget’ is incompatible with Germany’s ‘debt brake rule’ (Schuldenbremse), which caps fiscal deficits at 0.35 per cent of GDP per year.
It is ironic that the German government should fall foul of the very rule that once seemed to demonstrate Germany’s fiscal prudence. The debt-brake rule was passed by parliament in 2009, at the height of the financial and euro debt crisis. At that time, it served as a model for the EU’s Stability and Growth Pact (SGP), which has been used against the Eurozone’s supposedly reckless spenders. Former German chancellor Angela Merkel (who some referred to as the ‘Swabian housewife’ because of her alleged budgetary discipline) became the face of the harsh austerity measures imposed on countries like Greece.
A lot has changed since then. Germany is now in a recession and its economy has been contracting. Rhetorically, the government is committed to the idea of a restrained budget, but behind the scenes it has been borrowing huge amounts. The aforementioned €60 billion was only a small portion of the money that would be needed for the transition to green energy. The coalition had planned plenty of other ‘special funds’, such as a fund to help offset the effects of rising energy costs, which are now set to be phased out due to the court ruling.
The longer the budget crisis is drawn out, the weaker Germany will become. The impact of this will be felt not just within Germany itself, but also in Brussels. The EU is pursuing its own expensive Net Zero agenda and has increased its financial demands on member states, especially on Germany, the bloc’s largest contributor. Just last week, Germany announced that it would not support the EU Commission’s request for an additional €50 billion to deal with migration and other projects. This represents a massive financial setback for the EU.
German voters should see the budget crisis as a chance to reckon with the political elite’s green ideology. Not only has the crisis demonstrated the true cost of Net Zero; it has also exposed the coalition’s disregard for democracy. It’s time the German government’s green plans were properly held to account.
Sabine Beppler-Spahl is spiked’s Germany correspondent.
Picture by: Getty.
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