Economy minister questions Germany’s debt rule in light of decarbonisation costs

Germany’s economy minister and vice chancellor Robert Habeck has questioned the country’s commitment to a largely balanced budget, given the massive financial requirements for the climate friendly restructuring of the country's prized heavy industry. "Do the financial policy rules that we have given ourselves actually fit the current needs and challenges we have to master?," the Green Party politician asked at a decarbonisation congress hosted by the Federation of German Industries (BDI). Habeck explained that the balanced budget rule, also referred to as “debt brake,” was agreed under the assumption that Germany has access to cheap gas from Russia, China remains available as a reliable export market while the U.S. provide military security, Habeck said. "And all three assumptions are, to put it mildly, shaken."

Germany’s constitutionally enshrined debt brake rule limits new borrowing to a fraction of economic output. It was temporarily suspended due to the costs associated with the coronavirus pandemic, but the government plans to stick to it again. Preceding Habeck’s remarks, industry and labour unions had renewed their call for government subsidies worth billions of euros to lower electricity prices in order to preserve the presence of energy-intensive businesses in the country. Company representatives said current electricity prices threatened their existence, given that they had to pay multiple times more than rivals in the U.S. or China.

Habeck has proposed that energy-intensive firms receive subsidised electricity if they promise to decarbonise and stay within the country, but his concept for an “industry power price” remains controversial among the government coalition and economists. Given the disagreements within the government coalition, Habeck said the likelihood that Germany will get an industry power price was “around fifty-fifty.”