How the ambitious public investment agenda could be financed within the debt brake is one of the key issues currently being explored in the coalition talks. A study by Agora Energiewende and Forum New Economy has shown that the annual financing requirement for climate protection measures up to 2030 amounts to 46 billion euros – almost three times as much as previously estimated. But the study also shows that with a smart fiscal policy, the new German government can finance the necessary climate protection measures despite a return to the debt brake.
To discuss whether the points raised in the paper stand a chance of influencing policymaking and whether the emerging answers are sufficient, we invited a circle of experts and stakeholders from policymaking and science to share their views on the topic. To this end, Patrick Graichen, Director of Agora Energiewende, and Tom Krebs, Research Director of the Forum, first presented the results of the above mentioned study on public financing of climate investments, followed by an open discussion.
There was widespread agreement in the round about the urgency of the upcoming investment agenda and the plausibility of the financing requirements estimated by Agora and Forum New Economy. However, these needs would increase even more if investments outside the climate sector were included. Overall, the investment backlog in Germany amounts to gigantic dimensions. Moreover, all figures are to be understood in addition to what is already budgeted and invested.
For all the instruments presented in the study, it is necessary to weigh up which instrument should be used at which point in time. Promoting public enterprises as a debt-brake-neutral means of increasing the level of investment may be an economically efficient way to implement a golden rule. However, individual discussants pointed out that financing investment through equity or debt could be more expensive than financing through federal bonds. The marginal costs of public infrastructure would thus be even less cost-covering, and track prices for railroads, for example, could rise. Investments in public infrastructure should therefore always serve the purpose of enhancing efficiency of existing infrastructure in order to counteract these effects.
Further discussions focused, among other things, on the role of municipal investments, which have not yet been sufficiently reflected in the political agenda. How the federal and state governments can better cooperate to finance municipal investments within the debt brake remains an open question. The role of KfW as an issuer of loans to municipalities also remains to be discussed. Ultimately, the question of why private investment has declined in recent years despite the low interest rate environment must also be considered. The discussants agreed that more money in the system alone is not enough if insufficient digitization, a shortage of skilled workers, ailing infrastructure and other obstacles remain.
There was also widespread agreement that the European debate, in particular European state aid law, should be considered as a potential pitfall. A reform of debt brake elements via structural reforms was also discussed as a necessary step. The question of whether this step would be best taken in the political process or within the cyclical adjustment concluded the seminar.
The studies for further reading:
Public financing needs for climate investments in the period 2021-2030 – here.
Public financing of climate and other investments – here.