German government’s court setback unlikely to impact EU fiscal rule reform

A German court ruling that forced Berlin to freeze €60 billion in planned green investment spending is unlikely to have much impact on the reform of EU fiscal rules now under review, senior euro zone officials said on Thursday (16 November).

The German government froze major spending pledges on Wednesday after the country’s constitutional court declared the use of left-over pandemic emergency funds for green investment unconstitutional.

The ruling raised questions about the credibility of Germany’s hawkish Finance Minister Christian Lindner, who is pushing for a stricter approach to EU fiscal and debt rules, called the Stability and Growth Pact.

“I do not think this is enough to turn Germany into a dove,” one senior eurozone official said, when asked how the ruling could affect negotiations on changes to current EU fiscal rules.

“I think Germany will not change its position in the Stability and Growth Pact (SGP) negotiations – for them the SGP is about a rule-based approach, built on the principle that every country is responsible for its own public finances,” the official said.

“Germany is very much about making its own fiscal space. If you make the rules very loose then Germany fears it ends up paying for other country’s profligacy,” the official said.

Officials noted that German rules were already much stricter than the European framework.

“I don’t think this will have any effects on the European rules,” a second senior euro zone official said.

“The German rules are much stricter than the European rules. While Germany is mostly concerned with their own rules, the SGP is more about stabilising everybody else,” the official said.

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