German Budget Shock Major Blow for Economy, Habeck Warns

German Budget Shock Major Blow for Economy, Habeck Warns

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(Bloomberg) — German Vice Chancellor Robert Habeck said last week’s ruling by Germany’s top court curbing the use of off-budget special funds is a major blow for Europe’s biggest economy and could lead to higher power costs for households and companies.

Constitutional Court judges said that €60 billion ($65.5 billion) in untapped credit authorizations can’t be transfered into the government’s Climate and Transformation Fund, potentially threatening projects like the expansion of hydrogen infrastructure and charging stations for electric vehicles.

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It has also prompted fears that similar off-budget vehicles accounting for as much as €770 billion in funding may have to be dissolved or at least overhauled. Habeck said that while the government is still digesting the ruling and how to implement it, it’s already clear that it will have “massive implications” for Germany’s transformation to a cleaner and more technologically advanced economy.

Government support for efforts by companies to green manufacturing processes, including in the steel industry, and the expansion of solar power are among initiatives under threat, Habeck said Monday in an interview with Deutschlandfunk radio.

Read More: German Ruling Puts €770 Billion of Government Funds at Risk

“This is about the core substance of the German economy,” he said. “The answer is not easy to find and things could get really difficult.”

Habeck said that the court ruling, in his view, will also impact Germany’s Economic Stabilization Fund, known as the WSF.

If that proves to be the case, it could have implications for around €30 billion euros of net new debt in the 2023 federal budget, money that has been allocated to help shield companies from high energy prices.

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If the government is forced to take action on the WSF funds, it would mean that households and firms would face higher power prices and, potentially, higher gas costs as well, Habeck said.

—With assistance from Michael Nienaber and Kamil Kowalcze.

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