Chancellor Scholz Defends Budget Plan During Holiday

German Chancellor Olaf Scholz interrupted his holiday on August 6 to address a potential crisis regarding the 2024 budget. He referenced a government-commissioned legal assessment indicating that additional loans for infrastructure investments would not violate Germany's constitutional debt brake. The government is seeking clarity on three specific measures, including reallocating unused funds from the development bank (KfW) and categorizing loans to infrastructure companies Deutsche Bahn (DB) and Autobahn GmbH as “financial transactions” to circumvent debt limits. The legal assessment, conducted by Professor Johannes Hellermann, deemed loans to state-owned Deutsche Bahn as a permissible financing method. Scholz expressed confusion over any misinterpretation of this legal opinion and stated that the government would discuss subsequent steps privately. However, Hellermann's report raised concerns about the loans to Autobahn GmbH, which relies solely on federal budget funds for income, highlighting potential risks. Finance Minister Christian Lindner voiced apprehensions about the constitutional implications of the proposed measures, emphasizing that the chancellery, not his ministry, initiated the plan. He recalled a previous experience with the Constitutional Court that resulted in a rejected budget compromise, warning against repeating past mistakes. Lindner noted that the current dispute involves a relatively modest €5 billion, contrasting with the significant changes prompted by last year’s budget ruling, which had broader implications for fiscal policy.