Will Germany’s “debt brakes” stop its green ambitions?

BERLIN – In the middle of Germany’s election campaign, nearly 200 people have died in severe floods in Germany. Four months later, the fight against climate change has become the main topic of the new post-Merkel government.

Most of the roofs will be equipped with solar panels and more than 1,000 windmills will be built, doubling the share of renewables for electricity to 80% by 2030. The last coal mine will be closed in the same year, eight years earlier than planned. And 15 million electric cars will roam the country’s legendary Autobahn.

At least that is the ambition of what Olaf Schulz, the next appointed chancellor, says will be “Germany’s largest industrial modernization in more than 100 years”. was part of ruling plan He and his coalition partners announced Wednesday.

Who will pay for it all is another question — one that has been hotly debated by the very different parties that have joined Schulz’s Social Democrats, the Progressive Greens, and the pro-business Liberal Democrats.

The Green Party has campaigned to spend €50 billion in green investments each year for ten years to fund the country’s transition to renewable energy – and pay for it by scrapping the country’s strict balanced budget rule.

The Liberal Democrats agreed to join the government only on the condition that no taxes be raised and that they uphold the country’s balanced budget law, the so-called debt brake enshrined in its constitution.

It was no coincidence that the biggest battle of the six weeks of coalition talks was who would take control of the Ministry of Finance and with it its money. Robert Habeck, co-leader of the Greens, and Christian Lindner, leader of the Liberal Democrats, both wanted the job and fought for it to the end.

In the end, Mr. Lindner won, while Mr. Habeck will oversee a major new Department of Economics and Climate.

“On finance: it is no secret that positions in the coalition are far apart,” Mr. Habeck of the Green Party told the Sueddeutsche Zeitung in an interview published on Thursday. We talked extensively about taxes, subsidy cuts, and market regulation. If you ask me where I’d like to see more, this is the area.”

One of the biggest questions for climate change experts is whether the commitment to put Germany – Europe’s largest economy – on a path to carbon neutrality by 2045 remains an issue primarily driven by the Greens or is now truly a joint project by all EU members. New management.

Are its achievements in line with ambitions, or will the parties return to ideological grounds? said Lutz Weischer, who heads the Berlin office of Germanwatch, an environmental watchdog.

He said there were some signs of hope. By turning green transformation into a national project of industrial competitiveness and social justice, each of the three parties was able to sell it to their base.

The new government woven the commitment to put in place measures that would limit global warming to 1.5°C by the end of the century, as stipulated in the Paris Climate Agreement, through its 177-page governing agreement. There are 198 references to “climate” in that document, in all areas of policy from culture to foreign policy.

“The climate crisis is endangering our livelihood and threatening freedom, prosperity and security,” states the preamble to the Treaty of Alliance. “Achieving the Paris climate goals is our top priority. We want to reinvent our social market economy as a socio-environmental market economy.”

Even Mr. Lindner, the leader of the Liberal Democrats, proudly called the treaty “the most ambitious climate protection program of any industrial nation.”

“If this is really the spirit of the new government, then it will be a game changer,” Mr. Wesher said. “But it remains to be seen.”

Germany’s debt brake, written into the constitution in 2009, limits annual borrowing to 0.35 percent of nominal GDP, which amounts to nearly €12 billion a year, a far cry from the 50 billion the Greens say is necessary. .

But there are signs that the new government has found some back-end solutions to borrowing.

The first is to exploit the temporary suspension of the debt brake during the pandemic. As finance minister, Mr Schulz last year suspended the spending limit, allowed under a national emergency, and the alliance treaty says it won’t be brought back until the end of 2022.

This gives the new government time to borrow money and put it into a fund that will continue to work even after the limit on borrowing is back in effect.

Another way to raise money is to boost the government’s development bank, known as KfW, which can borrow money that the government can then allocate to infrastructure projects and other investments — without it showing up in the federal budget.

Economists said there are also ways to adjust the formula according to how the debt brake is calculated and to raise the spending limit in this way.

Few would expect this creative accounting to be enough to raise the 50 billion euros a year the Greens had lobbied for, but the commitment to a significant increase in public investment was widely praised.

“I think this agreement signals a change,” said Clemens Fuest, president of the Ifo economic institute. “A lot of the transformation investment is being pushed more aggressively now.”

Marcel Fratzcher, head of the German Institute for Economic Research, said he was impressed with the details in the proposed measures.

“There is a wind of change in the air,” said Mr. Fratzcher. “In terms of climate, it is a very ambitious, very detailed and very compelling programme. We will see if that is enough to bring Germany into line with the 1.5 degree target.”

Environmental organizations and climate activists are not convinced.

“Fridays for the Future” youth movement said in a statement: “The coalition agreement alone is not sufficient to guarantee the 1.5 degree limit.” According to Greenpeace, the program “only hints at a radical environmental breakthrough.”

Mr. Habek, Minister of Economy and Future Climate, acknowledged the difficulties that lie ahead.

“There is no other country in Europe that does what we do,” said Mr. Habeck. “Our neighbors are either sticking with coal, like Poland, or betting on nuclear power, like France, or doing both and a little bit of renewable energy. We are abandoning both old technologies.”

“There will be decisions that will be difficult,” he added. “and I know that.”

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