Germany must ‘invest heavily’ in green transition despite budget crisis, Scholz says

BERLIN — German Chancellor Olaf Scholz said Tuesday that his government would still "invest heavily" in the modernization and green transition of his country’s economy, but provided no specifics on how his coalition would pay for it amid a budget crisis that has sharply curbed the government’s ability to spend.

"We must now ensure that we in Germany manage to transform our economy and remain competitive as a strong industrialized country," the chancellor told lawmakers. This means the government "must now invest heavily" and "do everything we can to finally drive forward the energy transition in Germany and Europe," he said.

Earlier this month, the country’s top court ruled it unconstitutional for the government to repurpose €60 billion left over from an emergency COVID-19 fund for climate projects. The ruling also limited the government’s ability to draw from a variety of special funds created to circumvent the country’s constitutionally enshrined debt brake, which restricts the federal deficit to 0.35 percent of GDP except in times of emergency.

The budget crisis has forced the government to freeze new spending authorizations and to put approval of next year’s budget on hold. It has also forced the government to seek to retroactively declare an emergency and suspend the debt brake for 2023. Scholz’s government on Monday unveiled a supplementary 2023 budget, which parliament must approve.

It remains unclear how the ruling coalition will seek to plug an estimated €20 billion gap in next year’s budget. Concretely, the financing of several subsidies meant to accelerate the green transition is in doubt due to the budget crunch. That includes subsidies to help steel plants transition to hydrogen energy, as well investments in battery plants and microchips.

Yet Scholz said that his government would still finance such investments, without saying how.

"Wherever you look, be it the U.S., France, China or Japan, governments are busy investing massively into the future," Scholz said. Germany must not lose ground in this competition but "take a leading position," he added. The chancellor also vowed that the budget crisis would not impact social benefits, such as child benefits and pensions.

Scholz’s speech was frequently interrupted by heckling from the center-right and far-right opposition parties.

"It’s simply embarrassing what we see and hear from you here," Friedrich Merz, the leader of the center-right Christian Democratic Union (CDU), said in a speech that followed Scholz’s remarks. "You lack any idea of how this country should develop in the coming years."

Merz said his party will not back a reform of the debt brake as some, even within his own party, have called for. "We will not give you a hand to fall back into the old social democratic pattern of ever-increasing national debt," he said in a comment directed at the chancellor.

Merz has also threatened to bring a legal challenge if Scholz’s government attempts to suspend the debt brake again in 2024 by declaring an emergency.

Scholz gave no concrete indication of when his government would come up with a budget for 2024. If next year’s budget isn’t finalized before the end of this year, Germany’s government will need to start 2024 with an emergency budget.

Members of Scholz’s own government have suggested there will be no rapid agreement on next year’s budget.

"Considerable efforts will still be required to finalize the 2024 federal budget," German Finance Minister Christian Lindner, leader of the Free Democrats, wrote in a letter to the factions that comprise Germany’s tripartite ruling coalition. "We will have to have intensive discussions, which will not always be easy."