German debt brake ruling could doom energy crisis fund, says Habeck

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The €200bn fund set up by the German government last year to protect consumers from higher energy costs could be declared unconstitutional in the wake of a bombshell judgment by the country’s top court.

Robert Habeck, economy minister and deputy chancellor, said that last week’s constitutional court verdict could impact the Economic Stabilisation Fund, or WSF, the centrepiece of government efforts to overcome last year’s energy crisis.

“According to the grounds [provided by the court], the judgment basically applies to all the long-term funds we set up — because its wording is so sweeping,” Habeck told German radio on Monday.

While the verdict did not directly reference the WSF, Habeck’s remarks reflect concern in government circles that the ruling against a budgetary trick the coalition government has relied upon to sidestep German fiscal rules will have implications for other aspects of government spending.

Later in the day, Chancellor Olaf Scholz’s spokesperson also expressed concern. “In legal terms, this is uncharted territory,” said Steffen Hebestreit. “All special funds will now have to be looked at and assessed.”

The coalition government has sought to avoid overstepping the country’s constitutionally-enshrined “debt brake”, which limits budget deficits to 0.35 per cent of GDP, by reallocating emergency funds pledged during the pandemic for other purposes.

The debt brake rule can be circumvented in exceptional circumstances and it was suspended when coronavirus first struck.

The constitutional court ruled last week that a government move to allocate €60bn to a climate and transformation fund, which finances flagship projects to fight climate change and modernise the German economy, was illegal.

The €60bn had initially been earmarked to deal with the economic consequences of the pandemic, but had been left unspent.

The WSF was set up in the pandemic as an off-budget facility to help companies such as Lufthansa survive the lockdowns and other public health measures imposed during the Covid-19 crisis.

But last year, after Russia unleashed its full-scale invasion of Ukraine and slashed its gas exports to Europe, the fund was repurposed to help German businesses and consumers struggling with soaring energy bills.

It was used to pay for an emergency cap on gas and electricity prices that acted as a massive government subsidy to energy consumers. It capped the price of electricity for residential households at 40 cents per kilowatt hour and for gas at 12 cents/kWh.

Habeck’s ministry said in a statement that so far, some €31.2bn had been paid out from the WSF to help consumers with their energy bills — including €11.2bn for the gas price brake and €11.6bn for the electricity price brake.

“If we get into a crisis, we will no longer be able to activate the gas and electricity price brake,” Habeck said on Monday. “Then we’ll have higher gas, electricity and district heating prices.”

Meanwhile, the three parties in Scholz’s coalition — the Social Democrats (SPD), Greens and liberal Free Democrats (FDP) — have been frantically searching for ways to plug the €60bn funding gap created by the constitutional court’s decision.

One solution being discussed is to retroactively declare an emergency that would allow for the debt brake to be suspended for this year.

Asked if he would consider such an option, Habeck said he would “not want to speculate”. But he described 2023 as a “year in which we had to deal with extraordinary external events — Russia’s war and the absence of [Russian] gas.”

This year was also “a year where we had three quarters without growth . . . which we haven’t had in our postwar history”.