German alliance extends debt repayment period, overcharges climate fund Reuters

© Reuters. File picture: On October 27, 2021, Olaf Scholz, the chancellor-elect of the German Social Democratic Party, delivered a speech at the trade union conference in Hanover, Germany. REUTERS/Fabian Bimmer

Michael Nienaber

BERLIN (Reuters)-Germany’s new coalition party has agreed to support the government’s climate investment fund through an extension of the coronavirus debt repayment period and a budget strategy to create more fiscal firepower for the election.

The budget plan of prime minister-elect Olaf Schultz proposed by the three parties in the coalition agreement on Wednesday confirmed the Reuters exclusive report earlier this month.

The plan will allow all parties to avoid creating off-budget investment vehicles that have been proposed as an alternative idea to bypass debt restrictions and allow more public investment to accelerate the transition to a green economy.

The center-left Social Democratic Party (SPD), the Green Party, and the pro-commercial Liberal Democratic Party (FDP) led by Schultz are facing huge spending problems because in their alliance agreement, they agreed to restore strict debt limits from 2023 and Avoid tax increases.

In order to create more fiscal leeway, the parties will use the emergency provisions of the constitution’s debt braking rule for the third consecutive year, and may assume more debts in 2022 than the originally planned 100 billion euros.

According to the alliance agreement, the three parties agreed to reformulate Germany’s repayment plan for coronavirus debt and align it with the less stringent repayment plan of the EU Recovery Fund.

This means that Germany’s next coalition government will postpone the first five years of repayment of coronavirus debt from 2023 to 2028, and extend the repayment period from 20 to 30 years to 2058.

Sources told Reuters that this will increase the federal budget by 2 billion euros per year from 2023 and nearly 10 billion euros per year from 2026.

Climate Fund

The two sides also agreed to add “funds obtained from budgeted and unused credit authorizations through supplementary budgets” to the government’s Climate and Transformation Fund (EKF) this year to implement additional climate protection measures and economic transformation measures.

The two parties stated: “The purpose is to deal with the consequences of the coronavirus pandemic and the risks that the global climate crisis brings to the recovery of the economy and public finances.”

They added that EKF will “more than ever” be responsible for national and international climate protection and financing measures for economic transformation, including measures to promote climate-friendly transportation.

“According to the 2022 federal budget, we will study how to further strengthen the climate and transition funds within the framework of constitutional possibilities,” the parties said.

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

A person familiar with the budget plan said that the cabinet must approve the 2021 supplementary budget before the end of this year, but Parliament may approve it at a later stage.

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