The German budget freeze and its consequences for state subsidies
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On 15 November 2023, the German Federal Constitutional Court issued a judgement which has far reaching consequences for the federal budget and therefore in particular Germany’s ability to provide state subsidies. This is relevant for everyone relying on or intending to rely on state subsidies, including the semiconductor industry, energy and gas intensive companies, hydrogen producers and consumers, building modernisations, electromobility subsidies and many more.
The consequences of the current budget freeze and significant reduction of the federal budget are still to be determined and can only be assessed on a case-by-case basis. If you are or may be affected by this, we are happy to provide advice.
The judgment of the Federal Constitutional Court and its immediate consequences
The Federal Constitutional Court ruled that the second supplementary budget act 2021 (2. Nachtragshaushaltsgesetz 2021) is void (Judgement of 15 November 2023 - 2 BvF 1/22). The result of the judgement is that the Climate and Transformation Fund, from which many subsidies are being or are intended on being paid, has now been reduced by 60 billion euros. This is a reduction of around 2/3 of the entire fund.
As a consequence, the German finance minister has not only frozen the Climate and Transformation Fund, but also almost all of the general federal budget and the Economic Stabilisation Fund. In addition, the discussions on the budget for 2024 have currently been put on hold.
Background on the German budget and reasoning of the Court
In Germany, the federal budget is drawn up every year. The so-called debt ceiling applies for the budget, according to which no (or only very small) loans may be taken out to compensate for a lack of funds. An exception applies in the event of natural disasters or exceptional emergencies that significantly affect the state's financial situation. In simple terms, the German state may therefore borrow additional money if this is necessary to mitigate the consequences of a natural disaster or emergency situation. One such emergency situation was the coronavirus pandemic. Among other things, financial resources were allocated for this in the 2021 budget through borrowing.
At the end of 2021, the government realised that 60 billion euros of pandemic specific funds were not needed to deal with the consequences of the pandemic in 2021. These 60 billion euros were therefore transferred by law to the so-called Climate and Transformation Fund at the beginning of 2022. This is a special fund that runs outside of the regular budget and from which many subsidies, for example in the semiconductor industry, are also to be paid. The justification for shifting the funds was that investments in climate and transformation projects would boost the German economy and thereby help to recover from the pandemic.
However, the Federal Constitutional Court has now ruled that the 60 billion borrowed euros allocated to tackle the pandemic could not simply be shifted to the Climate and Transformation Fund. In summary, there is not a sufficient link between the investments intended to be paid from the Climate and Transformation Fund and the pandemic. There are further budgetary law reasons which we refrain from going into detail on at this point.
What happens next
There is an ongoing political discussion about the federal budget, special funds and how the available funds can now be distributed amongst different budgets. At this moment, there is no certainty as to whether non-binding commitments for subsidies are being kept, subsidies will be reduced or even cancelled and what consequences the budget freeze has on obligations already entered into.
If you are or may be affected by the budget crisis, please contact us so that we can evaluate on an individual basis what can be done.
