- Germany will suspend its borrowing limit for the year 2023.
- This decision comes in the wake of a budget ruling that created financial challenges.
- German Finance Minister Lindner is expected to officially announce the suspension of the debt brake on Thursday.
- Suspending the borrowing limit will provide flexibility in managing the country's finances and budget in light of the recent court ruling
On Tuesday, the Constitutional Court of Germany deemed the government's actions improper when they shifted borrowed money meant for pandemic relief to finance environmental projects and green technology, totaling 60 billion euros ($64.6 billion). Consequently, the court ruling disrupted environmental initiatives, investment plans, and the overall budget, leading to tensions within the governing coalition. The spending freeze affects all government ministries, including a special fund of around €200 billion established to aid companies in the aftermath of the pandemic and the energy crisis.
Economy Minister Robert Habeck issued warnings about the ruling's potential to jeopardize the core of the German economy and potentially hinder economic growth in the coming year.
Germany's stringent borrowing limits, known as the debt brake, ordinarily restrict annual borrowing to 0.35% of GDP, with exceptions for emergencies. However, the court ruled that the borrowed funds could not be allocated to purposes unrelated to the pandemic. Consequently, the passage of Germany's 2024 budget was postponed by lawmakers due to the significant budget shortfall resulting from the ruling. Today's decision opens the door for increased borrowing.
The German 10-year yield moved higher after the announcement and in the process has moved back above its 100-hour MA at 2.589% (see blue line on the chart below). The current yield is up to 2.616%.
