German economy to slow without green transition – vice chancellor

The uncertainty over fund allocations has aggravated Berlin's budget crisis, with the potential to harm GDP

Germany will face an economic downturn if the government fails to replenish funds designated for financing green initiatives, Vice Chancellor and Economy Minister Robert Habeck stated on Monday.

The warning comes as Germany's ruling coalition unveiled a supplementary budget this week that will temporarily lift a self-imposed cap on borrowing after a constitutional court ruling undermined the government's spending plans.

In a joint press conference on Monday with energy ministers of all 16 states, Habeck said any moves that deferred green transition projects would affect the “economic core of Germany.” He reaffirmed that the disappearance of the fund could shave 0.5% off German GDP next year.

Germany aims to be carbon neutral by 2045, which will require substantial investments in a hydrogen network, new power plants and upgraded solar and wind projects. The government had earlier forecast that spending on energy projects would surpass €211 billion ($231 billion) between 2024 and 2027.

However, last week the country’s top court banned the use of pandemic aid to finance green initiatives, stating that the re-allocation of €60 billion of unused debt to the government’s Climate and Transformation Fund violated constitutional law. Berlin was forced to freeze most new spending commitments as a result.

READ MORE: Germany halts spending on new green projects – Bloomberg

The ruling also brought into question the use of hundreds of billions of euros of financing in special funds that are not part of the federal budget, including those that pay for measures to ease the burden of high energy prices on households and companies, according to Habeck. Germany has 29 such non-budget funds worth around €870 billion.

Meanwhile, the proposed budget, which still has to be approved by the parliament, will see Germany suspend its constitutionally enshrined debt brake for a fourth year in a row to borrow roughly an extra €45 billion amid the crisis, which has sparked concerns over growth and an industry exodus.

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