Application for preliminary injunction against transfer of EUR 60 billion borrowing authorisation to ‘Energy and Climate Fund’ rejected

Press Release No. 104/2022 of 08 December 2022

Order of 22 November 2022
2 BvF 1/22

Second Supplementary Budget Act 2021 – Preliminary injunction

In an order published on 8 December 2022, the Second Senate of the Federal Constitutional Court rejected an application for a preliminary injunction lodged by 197 members of the Bundestag’s CDU/CSU parliamentary group in conjunction with abstract judicial review proceedings. In the principal proceedings, the applicants challenge the Second Supplementary Budget Act 2021 (Zweites Nachtragshaushaltsgesetz 2021) of 18 February 2022, which retroactively amended the Budget Act 2021 (Haushaltsgesetz 2021). The 2021 federal budget previously included an authorisation to borrow EUR 60 billion as a response to the COVID-19 pandemic. The envisaged borrowing was ultimately not required, however, and the Second Supplementary Budget Act 2021 transferred the authorisation with retroactive effect to the Energy and Climate Fund – a legally dependent special-purpose fund of the Federation. The applicants sought a preliminary injunction to prevent the abstract judicial review proceedings from being rendered moot before the matter could be decided.

The application in the principal proceedings is neither inadmissible from the outset nor manifestly unfounded. However, in the required weighing of consequences in the present preliminary injunction proceedings, the disadvantages that would arise if the preliminary injunction was issued, but the application for judicial review in the principal proceedings was ultimately unsuccessful, considerably outweigh the disadvantages that would arise if the preliminary injunction was denied, but the application for judicial review was successful.

Facts of the case:

The 2021 federal budget originally authorised total borrowing of approximately EUR 180 billion. In response to the COVID-19 pandemic, the Supplementary Budget Act 2021 (Nachtragshaushaltsgesetz 2021) increased that amount by a further EUR 60 billion to a total of approximately EUR 240 billion for the 2021 fiscal year. This authorisation was made possible by a Bundestag decision of 23 April 2021, which confirmed the ongoing presence of an extraordinary emergency within the meaning of Art. 115(2) sixth and seventh sentences of the Basic Law (Grundgesetz – GG).

Over the course of the 2021 fiscal year, it became apparent that the additional borrowing authorised by the Supplementary Budget Act 2021 would not be required. Against this backdrop, a proposal was put forward to transfer the entire EUR 60 billion of additional borrowing authorised by the Supplementary Budget Act 2021 to the Energy and Climate Fund.

Art. 1 of the Second Supplementary Budget Act 2021 amended the 2021 federal budget by increasing the total volume of the budget from about EUR 547.7 billion to about EUR 572.7 billion, and increasing the volume of the Energy and Climate Fund from about EUR 42.6 billion to about EUR 102.6 billion. Art. 2 provided for the amendment to enter into force with retroactive effect from 1 January 2021. The Act was signed by the Federal President on 18 February 2022 and promulgated in the Federal Law Gazette on 25 April 2022.

The applicants – 197 members of the CDU/CSU parliamentary group in the Bundestag – lodged an application for abstract judicial review and seek a declaration that Arts. 1 and 2 of the Second Supplementary Budget Act 2021 are incompatible with the Basic Law and void. The applicants argue that these provisions violate Art. 109(3) and Art. 115(2) GG by transferring the borrowing authorisations to the Energy and Climate Fund. They also claim that the borrowing authorisations set out in the Energy and Climate Fund fail to meet the constitutional requirements that apply to the structuring and use of special funds. They contend that the estimated figures for additional global income and decreases in global spending are too high and violate the parliamentary right to decide on the budget under Art. 110(2) first sentence GG. Finally, they argue that the promulgation of the Second Supplementary Budget Act 2021 – coming after the end of the 2021 fiscal year – fails to comply with constitutional budgetary principles.

In conjunction with their application for abstract judicial review, the applicants requested a preliminary injunction ordering that, until a decision is reached in the principal proceedings, the additional reserves allocated to the Energy and Climate Fund by Arts. 1 and 2 of the Second Supplementary Budget Act 2021 may only be used if and to the extent that the Bundestag approves a corresponding expenditure in the 2022 federal budget to cover an allocation to the special fund.

Key considerations of the Senate:

The application for a preliminary injunction with regard to Arts. 1 and 2 of the Second Supplementary Budget Act 2021 is unfounded.

I. Pursuant to § 32(1) of the Federal Constitutional Court Act (Bundesverfassungsgerichtsgesetz), the Federal Constitutional Court may provisionally decide a matter by way of a preliminary injunction if this is urgently required to avert severe disadvantage, prevent imminent violence or for other important reasons in the interest of the common good. In assessing whether these requirements are fulfilled, the Court must generally apply a strict standard, given the far-reaching consequences of a preliminary injunction. This is particularly the case when the suspension of a statutory provision is sought. Generally, the assessment of an application for preliminary injunction does not take into consideration the reasons submitted for the unconstitutionality of the challenged provision unless the application made in the principal proceedings is inadmissible from the outset or manifestly unfounded. Only in exceptional circumstances is a summary examination of the legal situation warranted. In all other cases, the application is assessed by a weighing of the consequences, in which the disadvantages of issuing the injunction are weighed against the disadvantages of not issuing it.

II. Based on the particularly strict standards that apply to an application seeking the suspension of a statutory provision, the present application for preliminary injunction is unsuccessful.

1. It is true that the application in the principal proceedings is neither inadmissible from the outset nor manifestly unfounded. Indeed, the application cannot be manifestly unfounded for the simple reason that the Court’s case-law has yet to give shape to the constituent elements of the relevant constitutional provisions.

a) In any case, however, it is not entirely inconceivable that in transferring borrowing authorisations to the Energy and Climate Fund (which since the enactment of the Second Supplementary Budget Act 2021 has been renamed the Climate and Transformation Fund), the challenged Act fails to meet the constitutional requirements that apply to the Federation’s borrowing in emergency situations. This is particularly true with regard to any possible violation of constitutional principles that arguably form an inherent part of the ‘debt brake’ rule (Schuldenbremse), namely, the principles of yearly budgeting (Jährlichkeit) and annuality (Jährigkeit).

aa) Art. 115(2) first sentence GG provides – as a further specification of the general prohibition on incurring structural new debt imposed on the Federation and the Länder in Art. 109(3) first sentence GG – that revenues and expenditures in the Federation’s budgeting shall in principle be balanced without revenue from credits. Pursuant to Art. 109(3) fourth sentence and Art. 115(2) second sentence GG, this requirement is satisfied when revenue from credits does not exceed 0.35 per cent in relation to the nominal gross domestic product. Art. 109(3) second sentence in conjunction with Art. 115(2) third sentence GG additionally provides that when economic developments deviate from normal conditions, the resulting effects on the budget must be taken into account symmetrically in periods of upswing and downswing, through the framework of a so-called ‘cyclical component’. Pursuant to Art. 115(2) fifth sentence GG, the specific mechanisms for taking cyclical economic developments into account must be set out in a federal law.

Art. 109(3) second sentence in conjunction with Art. 115(2) sixth to eighth sentence GG authorises the Bundestag to issue decisions allowing the credit limits set by the aforementioned requirements to be exceeded in the event of natural disasters or extraordinary emergencies that are beyond governmental control and are substantially harmful to the state’s financial capacity.

bb) (1) In the principal proceedings, it will fall to the Court to clarify whether the constituent elements of these emergency-related exceptions to the general prohibition on structural net borrowing under Art. 109(3) second sentence in conjunction with Art. 115(2) sixth sentence GG are, in principle, fully amenable to constitutional review. There may be limitations on the scope of review applicable to the requirement of substantial harm to the state’s financial capacity under Art. 109(3) second sentence and Art. 115(2) sixth sentence GG.

(2) Beyond the constituent elements explicitly mentioned in Art. 115(2) sixth to eighth sentences GG, there is also the question of whether a factual connection is required between the natural disaster or extraordinary emergency on the one hand, and the exceeding of credit limits on the other and, if so, whether this constitutional requirement also entails some kind of proportionality assessment – particularly an assessment of whether the emergency-related borrowing is necessary and appropriate. Furthermore, in order to review the legislator’s decisions on borrowing, it will be necessary to consider the burdens of substantiation that the legislator is obliged to satisfy.

(3) The Court will also have to examine whether the principles of yearly budgeting and annuality can be derived from Art. 109(3) and Art. 115 GG and whether they inform the general prohibition of structural net borrowing. Another question will be whether these principles also apply to exceptions from the debt brake rule in the event of natural disasters and extraordinary emergencies and, assuming they do apply, whether they can be circumvented by the use of special funds. Furthermore, it will also be necessary to clarify whether adherence to these principles is subject to strict constitutional review.

b) Finally, the fact that the Second Supplementary Budget Act 2021 was not adopted until 2022 may also be of constitutional significance.

aa) Based on the principle that budgetary provisions must be determined in advance (Vorherigkeitsgebot), Art. 110(2) GG states that the budget must be set forth in a law enacted before the beginning of the fiscal year. Whether Art. 110(2) GG can also be understood as including a constitutional requirement to promptly correct or adjust budget forecasts which appear, or subsequently prove to be, unrealistic – and whether this also applies to supplementary budgets which, by their very nature, can only be introduced during the current budget year – is a question that so far has been left open by the Court. The purpose of the principle that budgetary provisions must be determined in advance – combined with the principle that a budget must provide a complete and truthful account of public finances – is to safeguard the Budget Act’s effectiveness in steering and managing public finances. It is therefore directed at protecting the budgetary sovereignty of Parliament. Thus, it is not entirely inconceivable that this principle is also applicable to the introduction of supplementary budgets.

bb) Against this backdrop, it cannot be entirely ruled out that the timing of the Second Supplementary Budget Act’s adoption could have violated the principle that budgetary provisions must be determined in advance, which under constitutional law arises from Art. 110(2) first sentence GG.

2. In view of the foregoing, the required weighing of consequences leads to the conclusion that the disadvantages that would arise if the preliminary injunction was issued, but the application for judicial review in the principal proceedings was ultimately unsuccessful, considerably outweigh the disadvantages that would arise if the preliminary injunction was not issued, but the application for judicial review was successful. The application for a preliminary injunction must therefore be rejected.

a) If the preliminary injunction was issued, it would be tantamount to suspending the challenged Act.

aa) It is true that the applicants explicitly did not seek to have the Act suspended, but instead sought an injunction ordering that until a decision is reached in the principal proceedings, the additional reserves allocated to the Climate and Transformation Fund by the Second Supplementary Budget Act 2021 may only be used “if and to the extent that the Bundestag approves a corresponding expenditure in the 2022 federal budget to cover an allocation to the special fund”. If such a preliminary injunction was issued, however, the allocation provided for by the Act would not result in any increase in the Climate and Transformation Fund’s available resources, at least not in the interim. Issuing the preliminary injunction would thus be a (de facto) suspension of the Second Supplementary Budget Act 2021.

bb) In addition, it is not clear what funds from the current 2022 federal budget could be used by the Bundestag to cover a (renewed) allocation to the Climate and Transformation Fund. Presumably, any Supplementary Budget Act for 2022 would only be able to increase the reserves of the Climate and Transformation Fund by means of additional credit. This, in turn, would be subject to the limits on permissible new borrowing derived from Art. 115(2) GG.

cc) Relying on Art. 115(2) sixth sentence GG as the legal basis for a renewed allocation of up to EUR 60 billion in borrowing authorisations to the Climate and Transformation Fund would not be entirely free of constitutional concerns. Rather than actually serving to address a crisis, the purpose of this renewed allocation would be to ‘secure’ borrowing authorisations that were already granted by the challenged Act to address a crisis.

dd) The fact that the Bundestag declared an emergency situation for the 2022 budget year on 3 June 2022 makes no difference in this respect. The same constitutional questions continue to apply.

ee) If the preliminary injunction was issued, the EUR 60 billion originally made available to overcome the COVID-19 pandemic and then transferred by the Bundestag to the Climate and Transformation Fund with the Second Supplementary Budget Act 2021 could not (or no longer) be used by the Federal Government. This would have a major impact on the Federal Government’s short and medium-term programmes and measures.

(1) For example, the Federal Government intends to use the Fund to offer planning security for private investments that are dependent on the legally certain availability of public funding. This legal certainty would be lost if the preliminary injunction was issued, leading to a corresponding loss of private investments.

(2) Without the allocation of the EUR 60 billion at issue, the Climate and Transformation Fund’s financial plan would have to be revised, which could result in budget freezes being imposed by the Federal Ministry of Finance. Considerably less budgetary resources would then be available, having a negative impact on the federal programmes to fund energy-efficient buildings and subsidise electric vehicles.

(3) According to an assessment by the Federal Government, which cannot be refuted here, the ‘Decarbonisation of Industry’ programme could also be at risk. This programme is designed to finance projects aimed at reducing process-related emissions in energy-intensive industries. If the preliminary injunction was issued, the investments associated with this programme could be delayed or even cancelled, which could put the industrial sector at a competitive disadvantage.

(4) Furthermore, since 1 July 2022, the renewable energy levy (EEG-Umlage) has been financed using resources allocated to the Climate and Transformation Fund by the Second Supplementary Budget Act 2021. If these resources were no longer available as a result of the preliminary injunction – and if this triggered a reversal of the planned abolition of the renewable energy levy – there would be a rise in electricity prices, placing a significant additional burden on consumers and businesses.

(5) The limitations on the financial scope of the Climate and Transformation Fund, even if only temporary, would result in restructuring. This would lead to other programmes dependent on the Fund being scaled back or entirely cut, which in turn could prevent compliance with CO₂ reduction targets. Given the state’s obligations under the Climate Change Act (Klimaschutzgesetz), alternative programmes would have to be implemented to address the shortfall, which, in turn, could create new budgetary burdens.

ff) The outcome sought by the applicants still might not be possible even  if – instead of the injunction actually sought by the applicants – a preliminary injunction formally suspending the Second Supplementary Budget Act, insofar as it increases the reserves of the now-Climate and Transformation  Fund, was issued. In this case, the legislator could then adopt a Supplementary Budget Act to amend the 2022 federal budget, again invoking Art. 115(2) sixth sentence GG in order to allocate to the Climate and Transformation Fund those borrowing authorisations that were already made available – albeit temporarily suspended – by the Second Supplementary Budget Act 2021. And, unlike in the case of the injunction sought by the applicants, this would not constitute a ‘duplicate’ authorisation of borrowing for the same purpose.

Nonetheless, if the Second Supplementary Budget Act 2021 was formally suspended, it would still have a serious impact on the legislator’s room for manoeuvre in budgetary matters. The legislator would only be able to make limited legal and political use of the exception provided by Art. 115(2) sixth sentence GG.

b) If the preliminary injunction was denied, but the Second Supplementary Budget Act was later found to be unconstitutional, any borrowing authorisations not utilised by the time the decision was reached in the principal proceedings could be withdrawn or replaced by allocations – possibly credit-financed – from the federal budget.

However, there is a danger that the additional – and in this scenario unconstitutionally allocated –reserves of the Climate and Transformation Fund could by this point have been used to finance loans of up to EUR 60 billion, or at least that an equivalent amount of spending commitments might be made. This scenario does not appear entirely far-fetched, given that the existing reserves of the Climate and Transformation Fund amounted to approximately EUR 25.4 billion as of 31 December 2021 – without factoring in the effect of the Second Supplementary Budget 2021 – and that according to the federal budget adopted for 2022, the financial plan for the Climate and Transformation Fund includes spending commitments totalling EUR 67.4 billion. The federal budget would then have incurred liabilities of up to EUR 60 billion on the basis of unconstitutionally allocated resources, at least to the extent that the Climate and Transformation Fund’s other reserves were insufficient to cover all the binding obligations and spending commitments entered into by that point. Depending on the extent of the liabilities incurred by the borrowing, future Parliaments would have less room for manoeuvre to deal with the problems that would then arise, undermining the objectives pursued by Art. 109(3) and Art. 115(2) GG.

c) In general, the reasons in favour of a preliminary injunction must carry such weight that they render the issuing of the injunction indispensable. In cases where the suspension of a statutory provision is sought, the underlying reasons must possess even greater weight. In this respect, whether the disadvantages are irreversible or at least very difficult to reverse is decisive, since this would result in the interest in suspension taking precedence.

In light of these standards, the weighing of consequences leads to the conclusion that the disadvantages associated with the preliminary injunction being issued and the application in the principal proceedings later being unsuccessful outweigh the disadvantages associated with the preliminary injunction not being issued and the application in the principal proceedings later being successful.

In the latter case, it is true that the federal budget would then potentially include up to EUR 60 billion of obligations entered into unconstitutionally. Nevertheless, it can presently be assumed that the borrowing authorisations will not have been fully utilised by the time the decision in the principal proceedings is reached. In addition, the legislator has various options at its disposal to deal with the financial consequences for the federal budget.

Issuing the preliminary injunction, on the other hand, could lead to a situation in which the Federal Government’s programmes aimed at addressing the impact of the COVID-19 pandemic could no longer be financed. There would then be a serious risk that the stated purpose of the Second Supplementary Budget Act – namely, to overcome the economic challenges arising from the COVID-19 pandemic – would no longer be attainable, at not least in the medium term. The associated economic consequences would have a direct impact on both individuals and businesses.