FT reports Scholz's legacy 'torn to shreds' due to €60bn hole

The system for combating economic crises, built by German Chancellor Olaf Scholz, was “torn to shreds” due to the withdrawal of €60 billion from the German budget in mid-November, writes the Financial Times.

Scholz's system for dealing with the crisis included tapping the Economic Stabilization Fund (WSF), created to rescue struggling companies during the pandemic, providing it with €200 billion in credit lines and using it to subsidize electricity and gas prices for companies and consumers.

However, only €30 billion was actually paid out of the WSF last year, with the rest carried forward to the current year. The apex COURT held that this violated the basic principle that borrowed funds must be used in the year for which they were approved. The government has since confirmed that it now plans to wind down the WSF by the end of the year rather than deferring funding to 2024 .

“The Scholz system relied on all these extra-budgetary funds, and now they have all collapsed like a house of cards,” said one official who worked under the chancellor.

On November 16, the German Constitutional Court withdrew €60 billion from the budget following a claim by the CDU/CSU opposition bloc. In January 2022, the government of Chancellor Olaf Scholz retroactively changed the 2021 budget to include unspent €60 billion in borrowing funds intended to combat the consequences of the CORONAVIRUS pandemic.

The authorities planned to use this money to finance green energy projects over the next few years. However, the CDU/CSU considered such actions illegal, and the court agreed with the plaintiff’s opinion.

German Finance Minister Christian Lindner warned that withdrawing €60 billion from the budget would have dire consequences. Answering the question to what extent “the Germans will have to tighten their belts,” he noted that “in the future there will be a lack of government funding, which was intended to update the economy and infrastructure.”