Germany froze public spending for the rest of the year after a court declared the government’s spending plans unconstitutional, dealing a blow to Europe’s recovery and efforts to beef up its defenses and reduce carbon emissions.
The court decision is likely to widen the economic speed gap between Europe, whose economy has stagnated for over a year, and the U.S., which grew at an annualized 5% in the three months through September, turbocharged by massive fiscal stimulus.
Berlin’s decision to freeze all federal spending for the rest of the year came after the court defunded the government’s 60 billion euro—the equivalent of more than $65 billion—green-transition project. The court said Berlin couldn’t repurpose unspent credits originally earmarked to tackle the Covid-19 pandemic to fund environmental and energy projects. It said Berlin was bound by the country’s constitutionally enshrined fiscal rules that limit budget deficits to 0.35% of gross domestic product in normal times.
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