Scholz Hunts for 50 Billion Euros to Seal German Coalition Deal
Scholz Hunts for 50 Billion Euros to Seal German Coalition Deal
(Bloomberg) -- Chancellor-in-waiting Olaf Scholz and his prospective coalition partners are hunting for an extra 50 billion euros ($57 billion) in annual spending to smooth the path to forming Germany’s next government.
Scholz’s Social Democrats, the Greens and the pro-business Free Democrats are discussing the use of state-owned lender KfW, special purpose vehicles and unused funds to finance huge climate investment pledges without busting a constitutional borrowing limit, according to people familiar with the negotiations.
The goal is to raise money to address climate change -- pegged at 500 billion euros over 10 years by the Greens -- and develop digital infrastructure without having to raise taxes or abandon Germany’s cherished budget austerity.
Scholz, the current finance minister and vice chancellor, is aiming to be sworn in to replace Angela Merkel in early November, signaling the end of her 16-year term.
Talks between the three parties were initially divided into 22 working groups charged with seeking agreement on a vast range of topics and providing the basis for a coalition accord. They filed their papers Thursday and Scholz will lead a 21-strong high-level group from Monday to thrash out remaining differences.
The content of the talks has so far been largely kept secret because party officials fear leaks could undermine the project.
How to finance the Greens’ ambitious climate protection measures is one of the most sensitive issues.
Options include expanding KfW’s financial support for climate and energy investments and using state-owned rail operator Deutsche Bahn AG to ramp up investments in the rail network and train stations, said the people, who asked not to be identified because the discussion are private.
Another investment vehicle could be the Energy and Climate Fund, EKF. Created a decade ago, its budget rose to 4.5 billion euros in 2019, funded by revenue from European emissions trading. The government could also tap billions of euros in funds previously set aside for spending on refugees in Germany, the people said.
The Institute for Federal Real Estate, or BImA, could be one tool to help reach a goal of building 400,000 new homes annually. The new government is also considering ways to harness the 600 billion-euro Economic Stability Fund, WSF, announced in 2020 to cushion the economic impact of the pandemic and support companies adapting to the climate overhaul.
A surprise windfall in projected tax revenue is working in Scholz’s favor. Tax income will be about 35 billion euros higher on average through 2025 than forecast in May, according to the government’s latest estimates published Thursday in Berlin.
That amounts to total extra revenue for federal, regional and local governments of around 180 billion euros, according to the finance ministry. Annual federal income will be about 13 billion euros more than expected.
Europe’s biggest economy is continuing its gradual recovery from the impact of the coronavirus, helping underpin the revival in tax income.
The Greens and SPD are broadly aligned on the money needed to help tackle harmful emissions. But the FDP, which wants control of the finance ministry, is more inclined to keep spending in check, while fostering private investment.
The parties have already agreed on some projects relating to financial markets, including pension funds, property and the use of cash, according to the Sueddeutsche Zeitung newspaper, which obtained a memo outlining the plans.
The parties are also closing in on a deal to legalize cannabis for recreational purposes, Bloomberg reported this week. When asked on Thursday how much tax revenue he would expect from that, Scholz said it would depend on the number of users, and the conditions for use.
Haggling over funding and ministries continues and the final details and timing of agreements could still change. There is concern among the Greens -- the second-strongest of the three potential coalition partners behind the SPD in September’s election -- that they’ve failed to push through enough of their priorities, raising the stakes in the negotiations.
Robert Habeck, a co-leader of the Greens, said in an interview with RBB radio Friday that the effort to agree a coalition accord may fail if the three parties don’t agree on measures that make a sufficient contribution to tackling global warming.
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