By Andreas Rinke and Rachel More
BERLIN (Reuters) – Chancellor Olaf Scholz on Tuesday sought to reassure the German people and businesses that his government would modernise the economy and support vital industries like chip factories, despite a court ruling that tore a hole in the federal budget.
Speaking to parliament, Scholz went into Germany’s recent history of the COVID pandemic, the war in Ukraine and soaring energy prices to extend a suspension of self-imposed borrowing limits to tackle a crisis that has knocked his coalition.
A constitutional court ruling nearly two weeks ago blocked the government’s plans to reallocate unused pandemic funds towards green initiatives and industry support, raising fears Germany’s economy could be further weakened.
The verdict also called into question Germany’s traditionally strict fiscal policy and sparked warnings that German companies could be starved of support to keep them globally competitive against subsidies offered elsewhere.
“It would be a grave, an unforgivable mistake to neglect the modernisation of our country in the face of all these acute challenges,” Scholz told the Bundestag.
The country’s federal states had the greatest interest in securing investment in areas like semiconductors, climate-friendly steel production and battery plants, he said, addressing concerns of specific industries who fear losing out.
Scholz said the government would end a scheme to cap energy prices by the end of this year but promised to act quickly if prices shot up again.
However, he left open the question of whether the government would try to suspend Germany’s constitutionally enshrined debt brakes again in 2024, which some in his coalition have called for but the opposition might challenge in court.
Scholz said his government was working with parliament to draw up a 2024 budget “as quickly as possible” that could include spending curbs.
He underscored support for Ukraine, after the recent budget turmoil raised questions over how much military aid Berlin was willing to commit. Scholz’s government has pledged to double support to 8 billion euros ($8.76 billion) next year.
“It is also clear that we must not let up in our support for Ukraine and in overcoming the energy crisis. That would not be responsible, that would endanger our future,” he said.
($1 = 0.9134 euros)
(Reporting by Andreas Rinke, Miranda Murray and Rachel More; Writing by Matthias Williams; editing by Kirsti Knolle and Bernadette Baum)
