German top court strikes down €60bn climate funding

Germany’s top court has ruled the government broke the law with a €60bn off-budget fund, throwing Berlin’s plans for financing its energy transition and climate policy into disarray.

The judges said the government’s attempt to bring forward unused borrowing capacity from when the country’s debt brake was suspended in 2021 was illegal.

The debt brake, which limits extra government borrowing to 0.35 per cent of gross domestic product, was suspended under an emergency “escape clause” due to the Covid-19 pandemic, but it is due to come back into force next year. The government had hoped to circumvent it by shifting forward unused debt capacity that was approved when the law was still suspended.

As part of a wider €212bn off-balance sheet vehicle, the government had planned to use the €60bn for a range of projects including upgrading railways, financing heat pumps for households, subsidising semiconductor factories and making buildings more energy efficient. Some of the vehicle’s funding will come from carbon pricing and emissions trading schemes.