Germany eyes fiscal U-turn with new debt to finance climate plan | The Daily Star
12:00 AM, August 11, 2019 / LAST MODIFIED: 12:06 AM, August 11, 2019

Germany eyes fiscal U-turn with new debt to finance climate plan

Germany is considering ditching its long-cherished balanced budget policy to help finance a costly climate protection programme with new debt, a senior government official said.

Chancellor Angela Merkel’s government has managed to raise public spending without incurring new debt since 2014 thanks to an unusually long growth cycle, record-high employment, buoyant tax revenues and the European Central Bank’s bond-buying plan.

But as Germany’s borrowing costs sink to new lows almost daily and its economy cools in light of weaker foreign demand and bruising trade disputes, domestic and international calls are becoming louder to provide extra fiscal stimulus by running a small deficit again.

“The challenge now is how to shape such a fundamental shift in fiscal policy without opening the floodgates for the federal budget,” the official, with knowledge of internal discussions in the finance ministry, told Reuters on condition of anonymity.

“Because once it is clear that new debt is no longer taboo, everyone raises a hand and wants more money.”  For that reason, Berlin would link and limit any new debt strictly to the climate protection package that Merkel’s cabinet is expected to seal next month, the official said.

Merkel’s coalition government wants to cushion the effects of a planned exit from coal over the next two decades by pouring at least 40 billion euros ($45 billion) into affected regions and help them manage the shift away from fossil fuels.

The coalition’s junior partner, the centre-left Social Democrats (SPD) and their Finance Minister Olaf Scholz, are also advocating payouts to ease the social effects on low-income families of a new carbon emissions pricing system.

A finance ministry spokesman declined to comment.

But he pointed to a ministry statement saying the fight against climate change was a huge challenge that the government wanted to tackle with  “full force”.

Coalition parties want to agree the next steps at the climate cabinet’s next meeting on Sept. 20, the ministry said in the statement. It added that a lot of money was already made available to finance climate measures and that the planned CO2 pricing mechanism should bring additional revenues.

Still, the statement did not rule out new debt after German media also reported that such a move was an option.

“The black zero (balanced budget) is no longer tenable,” a senior SPD member told Reuters. He pointed to additional costs of planned climate protection measures that had already added up to more than 30 billion euros until 2024.

“We need to invest more, especially into infrastructure and climate protection,” the senior SPD member said.

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