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German government sets out plans for €60 billion ‘future’ fund

Germany's new government is planning to earmark 60 billion euros to fund 'future investment' including its plans to tackle climate change, Finance Minister Christian Lindner said on Friday.

Published: 10 December 2021 16:54 CET

Finance Minister Christian Lindner (FDP) sets out the coalition's plans to invest heavily in the transition to renewable energy on Friday, December 10th. Photo: picture alliance/dpa/POOL AP | Michael Sohn

The funds will be taken from debts approved to help the government tackle the coronavirus pandemic but which “have not been used”, said Lindner in his first major announcement since taking office on Wednesday.

The government had signed off a plan to borrow €240 billion in 2021 to finance measures to lessen the impact of the pandemic on businesses but will now only need 180 billion euros.

Germany’s coalition government of the Social Democrats, Greens and liberal FDP has pledged that the expansion of sustainable energy will be “drastically accelerated and all hurdles and obstacles will be removed”.

They plan to phase out coal and source 80 percent of the country’s energy from renewable sources by 2030, with the aim of achieving carbon neutrality

With an eye on the powerful automotive industry, the parties have also resolved to put 15 million fully electric cars on the road by 2030, up from just over 500,000 currently.

Lindner said the new funds would also be used to invest in the “digitalisation” of the German economy.

During the coalition negotiations, the centre-left SPD and the Greens had initially proposed more flexibility on fiscal policy.

But Lindner’s pro-business FDP succeeded in pushing for a tougher stance on public finances.

The coalition has promised a return to the so-called debt brake — a rule enshrined in the constitution that normally limits Germany’s public deficit to 0.35 percent of overall annual economic output — by 2023.

The debt brake was lifted to help fight the coronavirus pandemic.

“Only by ensuring stable finances can we meet the requirement of fairness between the generations,” Lindner said on Friday.

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Output is expected to expand 0.3 percent this year, the economy ministry said, up from a prediction of 0.2 percent in February.

The slightly rosier picture comes after improvements in key indicators — from factory output to business activity — boosted hopes a recovery may be getting under way.

The German economy shrank slightly last year, hit by soaring inflation, a manufacturing slowdown and weakness in trading partners, and has acted as a major drag on the 20-nation eurozone.

But releasing its latest projections, the economy ministry said in a statement there were growing indications of a “turning point”.

“Signs of an economic upturn have increased significantly, especially in recent weeks,” Economy Minister Robert Habeck said at a press conference.

The ministry also cut its forecast for inflation this year to 2.4 percent, from a previous prediction of 2.8 percent, and sees the figure falling below two percent next year.

“The fall in inflation will lead to consumer demand — people have more money in their wallets again, and will spend this money,” said Habeck.

“So purchasing power is increasing, real wages are rising and this will contribute to a domestic economic recovery.”

Energy prices — which surged after Russia’s 2022 invasion of Ukraine — had also fallen and supply chain woes had eased, he added.

Several months ago there had been expectations of a strong rebound in 2024, with forecasts of growth above one percent, but these were dialled back at the start of the year as the economy continued to languish.

‘Germany has fallen behind’

But improving signs have fuelled hopes the lumbering economy — while not about to break into a sprint — may at least be getting back on its feet.

On Wednesday a closely-watched survey from the Ifo institute showed business sentiment rising for a third consecutive month in April, and more strongly than expected.

A key purchasing managers’ index survey this week showed that business activity in Germany had picked up.

And last week the central bank, the Bundesbank, forecast the economy would expand slightly in the first quarter, dodging a recession, after earlier predicting a contraction.

German Economics Minister Robert Habeck

Economics Minister Robert Habeck (Greens) presents the latest economic forecasts at a press conference in Berlin on Wednesday, April 24th. Photo: picture alliance/dpa | Michael Kappeler

Despite the economy’s improving prospects, growth of 0.3 percent is still slower than other developed economies and below past rates, and officials fret it is unlikely to pick up fast in the years ahead.

Habeck has repeatedly stressed solutions are needed for deep-rooted problems facing Germany, from an ageing population to labour shortages and a transition towards greener industries that is moving too slowly.

“Germany has fallen behind other countries in terms of competitiveness,” he said. “We still have a lot to do — we have to roll up our sleeves.”

Already facing turbulence from pandemic-related supply chain woes, the German economy’s problems deepened dramatically when Russia invaded Ukraine and slashed supplies of gas, hitting the country’s crucial manufacturers hard.

While the energy shock has faded, continued weakness in trading partners such as China, widespread strikes in recent months and higher eurozone interest rates have all prolonged the pain.

The European Central Bank has signalled it could start cutting borrowing costs in June, which would boost the eurozone.

But Habeck stressed that care was still needed as, despite the expectations of imminent easing, “tight monetary policy has not yet been lifted.”

In addition, disagreements in Chancellor Olaf Scholz’s three-party ruling coalition are hindering efforts to reignite growth, critics say.

This week the pro-business FDP party, a coalition partner, faced an angry backlash from Scholz’s SPD when it presented a 12-point plan for an “economic turnaround”, including deep cuts to state benefits.

Christian Lindner, the fiscally hawkish FDP finance minister, welcomed signs of “stabilisation” in the economic forecasts but stressed that projected medium-term growth was “too low to sustainably finance our state”.

“There are no arguments for postponing the economic turnaround,” he added.