Chancellor Angela Merkel’s government in Germany has managed to raise public spending without incurring new debt since 2014. This has led to an unusually long growth cycle, record-high employment, buoyant tax revenues and the European Central Bank’s bond-buying plan.
But Germany’s borrowing costs are sinking to new lows almost daily. Its economy is suffering due to weaker foreign demand and trade disputes. A senior Germany government official shared that Germany is considering ditching its long-cherished balanced budget policy to help finance a costly climate protection program with new debt. “The challenge now is how to shape such a fundamental shift in fiscal policy without opening the floodgates for the federal budget,” the official said on condition of anonymity, “Because once it is clear that new debt is no longer taboo, everyone raises a hand and wants more money.”
According to the financial source, finance43.com/en/, Merkel’s coalition government wants to cushion the effects of a planned exit from coal over the next two decades and help them manage the shift away from fossil fuels. The coalition’s junior partner, the centre-left Social Democrats (SPD) and their Finance Minister Olaf Scholz, are also advocating pay-outs to ease the social effects on low-income families of a new carbon emissions pricing system. A senior SPD member said, “The black zero (balanced budget) is no longer tenable. We need to invest more, especially into infrastructure and climate protection.”
A finance ministry spokesman declined to comment but he said that the government wants to tackle the fight against climate change with “full force”. Merkel and Scholz have repeatedly defended the goal of a balanced budget. They have argued that it is important to reduce debt in economic good times and not to burden future generations with even more debt in light of Germany’s rapidly aging society.
SPD finance lawmaker Cansel Kiziltepe said, “The (balanced budget) should not be an end in itself or even a fetish. We should go for an economically wise policy. And that means we need to invest in economic downturns.” Eckhardt Rehberg and Hans Michelbach, senior lawmakers of Merkel’s conservatives, both said they wanted to stick to the goal of incurring no new debt.
This move comes after yields turned negative even for 30-year German bonds. This means investors actually pay the German state a premium to lend it money over a long period. It also chimes with international efforts to limit the effects of global warming.
A United Nations report on the effects of climate change pointed that global meat consumption must fall to curb global warming, reduce growing strains on land, water and improve food security, health and biodiversity.