Scholz admits his government faces painful financial choices over €60bn hole in budget

German chancellor Olaf Scholz has conceded his government faces painful financial choices after a far-reaching court ruling, but says that a multibillion euro budgetary crisis will not see cutbacks to welfare spending.

An unusually raucous Bundestag heard claims on Tuesday that the constitutional court had called out the Scholz administration for “brazen” bending of budgetary rules.

In a low-key address, amid a swirl of speculation and fake news online, Mr Scholz provided little detail about his government plans to respond to the growing crisis, but he insisted “nothing will change” for recipients of benefits. “The state will honour its commitments,” he said. “But this ruling creates a new reality...that will make it more difficult to meet what are still important, shared goals for our country.”

In a ruling earlier this month the constitutional court blocked a government plan to transfer to other projects €60 billion of funds originally earmarked for tackling the Covid-19 pandemic. Despite its now having a €60 billion hole in its budget, Berlin would continue to push forward an overhaul of infrastructure, bureaucracy and energy generation “after years of standstill”, the German leader insisted.

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But Mr Scholz said room to manoeuvre for his coalition’s “great modernisation plans” had been curtailed by the court ruling. This was an additional challenge, he conceded, on top of ongoing pandemic costs, an emergency reconfiguration of German energy deliveries and the multibillion clean-up costs after 2021 summer floods in southwestern Germany.

Opposition leader Friedrich Merz, chairman of the centre-right Christian Democratic Union (CDU), disputed the chancellor’s framing of the budget emergency as the result of unprecedented and unexpected crises.

He said the crisis was caused by the Scholz coalition trying to “square the circle” of contradictory priorities: “bloated” welfare spending and state-funded climate plans of the Social Democratic Party (SPD) and Greens, alongside liberal Free Democratic Party priorities to cut taxes and balance the budget.

Mr Merz told the Bundestag the constitutional crisis was rooted in a decision by Mr Scholz, as acting finance minister and chancellor-elect two years ago, to repurpose pandemic emergency funding for his new coalition’s programme, which had fallen apart “like a house of cards”.

“Given this defeat I would have expected at least a word of regret or apology from you,” said Mr Merz. “That this is the government of the world’s fourth largest economy, it’s just embarrassing what we see and hear from you.”

Mr Merz insisted his party would stick to the so-called debt brake, which limits all government borrowing to 0.35 per cent of gross domestic product. This was a shot across the bow of some CDU state leaders, whose budgets are also affected by the court ruling.

Maintaining budget discipline in Germany, the CDU leader said, was of European importance in terms of holding together the single currency. “If this dam breaks in Germany then dams will break in all other countries,” said Mr Merz. “Germany has a role model function here whether you want to live up to that or not.”

Germany’s Green Party, a member of the governing coalition, insisted the debt brake instrument was in urgent need of reform because its undifferentiated approach to debt meant the cost of balanced budgets was too great. “It creates indirect debt for future generations, such as ramshackle autobahn bridges,” said Katharina Dröge, Green parliamentary floor leader.

Ahead of his second anniversary as chancellor next week, some 51 per cent of Germans think Mr Scholz is doing a poor job, according to a new opinion poll.

“A chancellor has never polled so badly with [the polling company] Insa,” the agency’s chief executive Hermann Binkert told the Bild tabloid. “The Germans are dissatisfied with their government and particularly blame the chancellor.”