German coalition to extend debt settlement, overloading climate fund according to Reuters

By Michael Nienaber

BERLIN (Reuters) – New parties in the German coalition have agreed to create more fiscal firepower for election promises by extending the deadline for repaying the coronavirus debt and strengthening the government’s climate investment fund with a budget maneuver.

Chancellor Olaf Scholz’s budget plan, presented by the three parties in a joint coalition agreement on Wednesday, confirmed an exclusive Reuters report earlier this month.

The plans will allow the parties to create off-budget investment vehicles, which were launched as an alternative idea to avoid debt limits and allow for more public investment to accelerate change to a green economy.

Scholzen’s center-left Social Democrats (SPD), Greens and Free Democrats for Business (FDP) have a huge spending problem in the coalition agreement, which agreed to return to sharp debt limits from 2023 and avoid tax hikes.

To create more fiscal powers, the parties will use the debt-emergency emergency clause in the constitution for the third year in a row and are likely to take on more than the € 100 billion debt initially planned for early 2022.

The three parties agreed to reconsider Germany’s plan to repay the debt of the coronavirus and align it with such a strict plan to reimburse the European Union’s recovery fund, according to the coalition agreement.

This means that the next German coalition government will delay the first payment of the coronavirus debt by five years from 2023 to 2028 and extend the repayment period from two decades to three decades to 2058.

This will create an additional 2 billion euros a year in the federal budget by 2023, and nearly 10 billion euros by 2026, sources told Reuters.

FUND CLIMATE

The parties agreed this year to overburden the Government’s Climate and Transformation Fund (EKF) with funds “from an already planned and unused credit permits through an additional budget” to enable additional climate protection measures and economic transformation measures.

“The aim is to address the consequences of the coronavirus pandemic and the simultaneous risks to the recovery of the economy and public finances caused by the global climate crisis,” the parties said.

The EKF would be “more than ever” responsible for funding national and international climate protection measures as well as for economic transformation, including steps to promote climate-friendly mobility, they added.

“With the federal budget for 2022, we will look at how we can strengthen the climate and transformation fund in the context of constitutional options,” the parties said.

Jens Suedekum, a professor of economics at Heinrich Heine University in Düsseldorf, said the budget maneuver will allow the governing coalition to strengthen the EKF this year and next, when the debt brake is still suspended, and then use the funds for public investment. in the coming years.

One person familiar with the budget plans said the cabinet would have to approve additional budgets for 2021 before the end of the year, but parliament could approve it later.