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Friday, November 26, 2021

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

BERLIN. In the midst of Germany’s election campaign, nearly 200 people died in severe flooding in Germany. Four months later, tackling climate change has become a central theme in the new post-Merkel government.

Most roofs will be equipped with solar panels and more than 1,000 windmills will be built, which will almost double the share of renewables to 80 percent by 2030. The last coal mine will close in the same year, eight years earlier than planned. And 15 million electric vehicles will travel along the legendary autobahn of the country.

At the very least, that is the goal of what, according to the next-appointed Chancellor Olaf Scholz, will be “Germany’s largest industrial modernization in more than 100 years.” It was part of a governance plan that he and his coalition partners announced Wednesday.

Who will pay for it all is another matter that has been hotly debated by a wide variety of parties that have joined Mr. Scholz’s Social Democrats, progressive green and free democrats for business.

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

The Free Democrats agreed to join the government only on the condition of refusing to raise taxes and adhering to the country’s balanced budget law, the so-called debt brake, enshrined in its Constitution.

It is no coincidence that in the six weeks of negotiations to form a coalition, the biggest battle was over who would control the Treasury, and with it, the wallets. Both Robert Habeck, the co-leader of the Greens, and Christian Lindner, the leader of the Free Democrats, wanted the position and fought for it to the end.

In the end, Mr. Lindner won, and Mr. Habek took over the new super-ministry of economy and climate.

“As far as finance is concerned, it is no secret that the positions in the coalition are far apart,” said Mr Habek of the Süddeutsche Zeitung Greens in an interview published on Thursday. “We talked a lot about taxes, subsidy cuts and market regulation. If you ask me where I would 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 carbon neutral track by 2045 is still an issue that Greens are promoting in the first place, or is it really a project at the moment. shared by all members of the new administration.

“Are his accomplishments in line with ambition, or will the parties return to ideological starting points?” – said Lutz Weischer, head of the Berlin office of Germanwatch, which monitors the environment.

He said there are some encouraging signs. By transforming 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.

The new government has pledged to introduce measures that will limit global warming to 1.5 degrees Celsius by the end of the century, as mandated by the Paris Climate Agreement, in its entire 177-page regulatory agreement. This document contains 198 references to “climate” in all areas of politics, from culture to foreign policy.

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“The climate crisis threatens our livelihoods and threatens freedom, prosperity and security,” reads the preamble to the coalition agreement. “Achieving the climate targets of Paris is our top priority. We want to transform our social market economy into a social and environmental market economy. “

Even Mr. Lindner, the leader of the libertarian Free Democrats, proudly called the treaty “the most ambitious climate protection program of any industrialized country.”

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

Germany’s debt brake, which was spelled out in the Constitution in 2009, limits annual borrowing to 0.35 percent of nominal gross domestic product, which is roughly € 12 billion a year, well below the 50 billion the Greens think are needed.

But there are signs that the new government has found some workarounds to borrow.

One is to use a debt brake temporary break during a pandemic. As finance minister, Mr Scholz last year suspended the spending limit, which is allowed amid a national emergency, and the coalition agreement says it will not be reinstated until the end of 2022.

This gives the new government time to borrow the money and put it in a fund that will continue to operate even after the borrowing limit is in place.

Another way to raise money is to bolster a state-owned development bank known as KfW, which can borrow funds that the government can then allocate for infrastructure projects and other investments – without being reflected in the federal budget.

There are also ways to tweak the formula depending on how the debt brake is calculated, and thus raise the spending cap, economists said.

Few expect this creative accounting approach to be enough to raise the € 50 billion a year that the Greens have lobbied for, but the push for massive increases in public investment has been widely welcomed.

“I think this agreement signals a change,” said Clemens Fuest, president of the Ifo Economic Institute. “A lot of transformation investments are really running out right now.”

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

“There is a wind of change in the air,” said Mr. Fratscher. “In terms of climate, this is a very ambitious, very detailed and very convincing program. Let’s see if this is enough to make Germany compatible with the 1.5 degree target. ”

Not convinced by environmental organizations and climate activists.

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

Mr Habek, future Minister of Economy and Climate, acknowledged the challenges ahead.

“No other country in Europe does what we do,” said Mr Habek. “Our neighbors either stick to coal, like Poland, or rely on nuclear energy, like France, or do both and some renewable energy. We’re leaving both old technologies behind. “

“There will be tough decisions,” he added. “I know it.”

World Nation News Deskhttps://www.worldnationnews.com
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