Will Germany’s ‘Debt Brake’ Stop Their Green Passion?


BERLIN — Nearly 200 people died in extreme flooding in Germany, amid Germany’s election campaign. Four months later, the fight against climate change became the main theme of the new post-Merkel government.

Most of the roofs will be fitted with solar panels and more than 1,000 windmills will be built, which will nearly double the share of renewables in electricity to 80 percent by 2030. The last coal mine will close that same year, eight years ahead of schedule. And 15 million electric cars will drive around the country’s legendary Highway.

At least, that’s the ambition of what Olaf Scholz, the next chancellor, says will be “Germany’s greatest industrial modernization in over 100 years”. was a part of management plan he and his coalition partners announced on Wednesday.

Who’s going to pay for all of this is another question – and one that’s been hotly debated by the very different parties that join Mr. Scholz’s Social Democrats, progressive Greens, and pro-business Free Democrats.

The Greens campaigned for ten years to spend 50 billion euros each year on green investments to finance the country’s transition to renewable energy, and pay for it by removing the country’s strict balanced budget rule.

The Free Democrats agreed to join the government only on the condition that they not raise any taxes and support the country’s balanced budget law, the so-called debt brake in the Constitution.

It was no accident that the biggest battle in the negotiations to form a six-week coalition was to control the finance ministry and with it the purse strings. Both Greens co-leader Robert Habeck and Free Democrats leader Christian Lindner wanted the job and fought for it to the end.

In the end, Mr. Lindner won, and Mr. Habeck will head a new economy and climate ministry.

“On finance: it’s no secret that the positions in the coalition are very far apart,” Mr Habeck of the Greens told the Süddeutsche Zeitung in an interview published on Thursday. “We talked extensively about taxes, cutting subsidies, and market regulations. If you ask where I would like to see more, this is the region.”

One of the biggest questions for climate change experts is whether the commitment to put Europe’s largest economy, Germany, on track to become carbon neutral by 2045 is still a topic put forward by the Greens or is it now truly a project shared by all its members. new management.

“Will their achievements coincide with ambitions or will the parties revert to their ideological starting points?” said Lutz Weischer, head of the Berlin-based office of Germanwatch, an environmental watchdog.

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

Throughout the 177-page governing agreement, the new government has made a commitment to implement measures to limit global warming to 1.5 degrees Celsius by the end of the century, as stipulated by the Paris climate agreement. There are 198 “climate” statements in this document across all policy areas, from culture to foreign policy.

“The climate crisis is endangering our livelihoods and threatening freedom, well-being and security,” says the preamble of the coalition agreement. “Achieving Paris’ climate goals is our top priority. We want to reinvent our social market economy as a social-ecological market economy.”

Even the leader of the Libertarian Free Democrats, Mr. Lindner, proudly described the deal as “the most ambitious climate protection program of any industrialized nation”.

“If that’s really the spirit of the new government, then it really changes the rules of the game,” said Mr. Weischer. “But it remains to be seen.”

Germany’s debt brake, added to the Constitution in 2009, limits annual borrowing to 0.35 percent of nominal gross domestic product, which is roughly 12 billion euros a year, far more than the 50 billion the Greens need.

But there are signs that the new government has found some backdoor solutions to borrowing.

One is to take advantage of the temporary suspension of the debt brake during the pandemic. As finance minister, Mr Scholz suspended the allowable spending cap in a national emergency last year, and the coalition agreement says it won’t be reinstated 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 borrowing limit is reinstated.

Another way to raise money is to strengthen the state development bank known as KfW, which can borrow funds that the government can set aside for infrastructure projects and other investments – without appearing in the federal budget.

Economists said there are ways to change the formula and increase the spending limit in this way, depending on how the debt brake is calculated.

Few expect this creative accounting to be enough to raise the €50 billion a year the Greens lobbied for, but the commitment to a substantial increase in public investment has been widely applauded.

“I think this agreement marks a change,” said Clemens Fuest, head of the Ifo economics institute. “Many conversion investments are now really pushing harder.”

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

“There’s a wind of change in the air,” said Mr Fratzscher. “It is a very ambitious, very detailed and very convincing program on climate. It remains to be seen whether it is sufficient for Germany to comply with the 1.5 degrees target.”

Environmental organizations and climate activists were not convinced.

“This coalition agreement alone is not enough to achieve the 1.5 degree limit,” the Fridays for Future youth movement said in a statement. According to Greenpeace, the program “only hints at a radical ecological breakthrough.”

Mr. Habeck, the future economy and climate minister, acknowledged the challenges ahead.

“No other country in Europe does what we do,” said Mr. Habeck. “Our neighbors are either clinging to coal like Poland, or betting on nuclear power like France, or making both a little and a little bit of renewable energy. We are leaving both old technologies behind.”

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



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