Germany slides deeper into budget crisis. Here’s what you need to know

Germany’s budget is in trouble.

Last week, the constitutional court ruled that it was unlawful to re-allocate unused debt originally designated for emergency Covid-19 pandemic funding to current spending plans.

This week, the finance ministry froze spending across all ministries.

But that could be just the tip of the iceberg as financial woes could lead to political ones, and even potentially endanger the future of Berlin’s coalition government.

Germany didn’t get to this point overnight, however — in ways, the roots of the current crisis even predate the pandemic. And that is because of Germany’s so-called debt brake.

Enacted in 2009, the debt brake limits how much debt the government can take on, and dictates the maximum size of the federal government’s structural budget deficit. The rules say it can be no bigger than 0.35 percent of Germany’s annual GDP.

Since the global financial crisis, the debt brake has been the cornerstone of German fiscal policy.

But then, the Covid-19 pandemic happened. The government took on emergency debt to try to stem the impact the pandemic had on its budget through a temporary debt brake suspension.

As it turned out, the extra funding wasn’t actually needed. And so, the current coalition government decided to re-allocate it to finance policies aimed at climate change and a greener, more sustainable economy.

Germany’s opposition was not happy about the re-allocation and eventually took the matter to Germany’s constitutional court. Last week, the verdict came in and, in a blow to the government, the court confirmed that the emergency funding was not allowed to be used for policy plans unrelated to the pandemic.

The…