The German government announced a near-total freeze on new spending on Tuesday, as its rivals claimed Olaf Scholz, Germany’s chancellor, had wrecked the economy and that his coalition was “finished”.
German officials said the freeze was a necessary response to a court ruling last week which blocked the government’s spending proposals for 60 billion euros (£50 billion) in unused pandemic funds, a move that plunged the budget into chaos.
The constitutional court’s decision to block the spending of the funds, which the government had earmarked for green initiatives, has had far-reaching consequences for financial planning across the federal budget.
It also prevents the German government from using the pandemic-era funds to help German businesses be more competitive amid a weak economy, according to Reuters news agency.
“The step reflects the necessity of the situation,” a German economy ministry spokesman said of the budget freeze on Tuesday. “The federal government is working intensively on solutions.”
Tensions in coalition
The move has also created tensions in Mr Scholz’s Ampel (traffic light) coalition, which shares power between his ruling SDP party, the pro-spending Greens and the fiscally conservative FDP.
The Ampel’s popularity has slumped in recent months, partly due to advancing unpopular green policies amid a major cost of living crisis. Mr Scholz has also been fiercely criticised for dithering on key decisions related to the war in Ukraine, such as meeting Kyiv’s requests for high-powered weaponry.
On Tuesday afternoon Mr Scholz’s main rivals, the centre-Right CDU and CSU parties, were already claiming that his coalition had plunged Germany into an economic disaster that would soon bring down the government.
“The budget decisions for 2024 must be stopped immediately. The financial disaster that Scholz, Habeck and Lindner have plunged Germany into must now be ruthlessly exposed,” said Alexander Dobrindt, a senior CSU member of the Bundestag, the German parliament.
“The Ampel is finished,” he added in comments to Bild, a centre-Right German tabloid which has been a vocal critic of the Scholz government.
Jens Spahn, a CDU Bundestag member, said: “The Ampel does not have its finances under control. Germany is badly governed. The uncertainty is damaging the standing of businesses, and that costs prosperity, jobs and trust.”
A letter seen by German media on Tuesday said that nearly all future spending across the entire federal budget has been frozen.
It not only applies to all German ministries but also a 200 billion euro (£170 billion) fund that was set up to support businesses during the pandemic, and then to mitigate the energy crisis after the Russian invasion of Ukraine.
Earlier this week, German government sources warned that the court’s ruling on budget spending may hamper efforts to decarbonise the steel industry and build lucrative computer chip factories.