Germany should not lift debt rules to fund long-term climate measures – finance minister

Climate action and the transformation of the economy are no “exceptional emergencies” that warrant a suspension of Germany’s cap on government lending, finance minister Christian Lindner wrote in an op-ed in news magazine Der Spiegel. Lindner said climate action and decarbonisation are not tasks that are “beyond the state’s influence” and therefore should be funded through regular budgeting to keep fiscal discipline. The treasurer from the pro-business Free Democrats (FDP) said climate action instead is “a structural and long-term task that the state can plan for in its fiscal policy.” The changes associated with effective climate action should not be funded through short-term financial aid and subsidies and instead required “shifting funds and sometimes accepting inconvenient truths about what is possible under prudent policy,” he argued. While the debt cap was lifted in response to short-term price shocks from the energy crisis, longer transition measures could not be funded this way. This included funding a lower electricity price for industry through the debt brake, a measure that was called for by Green economy and climate minister Robert Habeck. “We should rather bet more on a market-based competition of ideas and innovative spirit” based on CO2 emissions trading to foster climate action, Lindner added. The minister said that higher debt would ultimately limit Germany’s capacity to act on emission reductions, especially as climate investments often do not automatically lead to higher growth. Most investments had to be made privately, and the state’s role is to facilitate these through cutting bureaucracy and tax burdens, he added.

The country’s constitutional ‘debt brake,’ stipulates that new debt must not exceed 0.35 percent of annual economic output. In early 2022, Germany’s government adjusted the country’s budget to allow taking on some 60 billion euros in new debt for a so-called ‘Climate and Transformation Fund,’ thereby rededicating funds that were initially earmarked for the country’s coronavirus pandemic response. Lindner said the measure taken by his predecessor as finance minister, today’s chancellor Olaf Scholz from the Social Democrats (SPD), “wasn’t my favourite compromise in the coalition but still responsible.” The conservative opposition CDU/CSU alliance took legal action against the budget readjustment, arguing it violated the debt brake’s principles. The country’s Constitutional Court on 15 November will announce a ruling on “so far unclear basic legal questions” associated with the debt brake’s role in emergency-related credit taking. The country’s Court of Auditors already last year called reallocation of funds is “constitutionally questionable.”