German coalition reaches deal to end budget crisis

BERLIN

German Chancellor Olaf Scholz's coalition has reached a last-minute deal to end a budget deadlock, an official source said yesterday, after a constitutional court ruling upended its spending plans and plunged it into a crisis. 

"There is an agreement," the source told AFP, adding that details will be unveiled at midday at the chancellery.

In its bombshell ruling last month, Germany's top court found that the government had broken a constitutional debt rule when it transferred 60 billion euros ($65 billion) earmarked for pandemic support to a climate fund.

The ruling blew a huge hole in spending plans, forcing the government to adopt an emergency budget for 2023, and sending it scrambling for a new plan for 2024.

According to Finance Minister Christian Lindner's estimates, the coalition needs to make up a 17-billion-euro gap.

The crisis came at a time when the German economy was already struggling, and fanned fears that hefty subsidies to attract foreign investments could be cut, delaying crucial plans for the country's planned switch to carbon neutrality.

A main point of friction between the coalition parties concerns the debt brake rule, which is enshrined in German law and prevents the state from borrowing more than 0.35 percent of annual GDP to cover a structural deficit, barring exceptional circumstances.

The debt rule, which came into force in 2011 under former Chancellor Angela Merkel, was meant to underline Germany's commitment to fiscal prudence.

With an ageing population, the conservatives have argued that overburdening younger generations with more borrowings would be irresponsible.