German coalition expands debt repayment and increases climate fund

Olaf Scholz, German Social Democratic Chancellor on hold, addresses a trade union congress in Hanover, Germany, October 27, 2021. REUTERS / Fabian Bimmer

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  • Parties agree to extend debt repayment until 2058
  • Coalition paves way for climate fund overfeeding

BERLIN, Nov. 24 (Reuters) – The new parties in the German coalition have agreed to create more fiscal firepower for election pledges by lengthening the debt repayment period linked to the coronavirus and strengthening the climate investment fund government through a budgetary maneuver.

The budget plans of pending Chancellor Olaf Scholz, as presented by the three parties in their joint coalition agreement on Wednesday, confirmed an exclusive Reuters report earlier this month. Read more

The plans will allow parties to avoid creating off-budget investment vehicles, which had been launched as an alternative idea to bypass debt limits and allow more public investment to accelerate the transition to a green economy. .

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Scholz’s center-left Social Democrats (SPD), pro-business Greens and Free Democrats (FDP) face a huge spending problem because in their coalition deal they agreed to go back to limits debt from 2023 and avoid tax increases.

To create more fiscal leeway, parties should use the emergency clause of the debt brake rule in the constitution for a third year in a row and probably take on more debt than the € 100 billion originally planned in 2022.

The three parties agreed to rework Germany’s coronavirus debt repayment plan and align it with the less stringent European Union stimulus fund repayment plan, according to the coalition agreement.

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

This will create additional space in the federal budget of 2 billion euros per year from 2023 and nearly 10 billion euros per year from 2026, sources told Reuters.


The parties also agreed to overburden the government’s Climate and Transformation Fund (EKF) with “funds from credit authorizations already on budget and unused through a supplementary budget” this year to allow for additional climate protection measures. and measures to transform the economy.

“The objective is to fight against the consequences of the coronavirus pandemic and the simultaneous risks for the recovery of the economy and public finances induced by the global climate crisis,” the parties said.

The EKF would be charged “even more than before” with funding national and international climate protection measures as well as economic transformation, including measures to promote climate-friendly mobility, they added.

“With the federal budget for 2022, we will consider how we can further strengthen the climate and transformation fund within the constitutional possibilities,” the parties said.

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

A person familiar with budget plans said cabinet is expected to pass the 2021 Supplementary Budget before the end of this year, but Parliament may approve it at a later stage.

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Reporting by Michael Nienaber; Editing by Pravin Char

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Tana T. Thorsen