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The green transformation fund Another secret route around the debt brake

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The green transformation fund Another secret route around the debt brake

At their parliamentary group meeting last Wednesday, the Greens decided to call for the establishment of an investment fund. What to make of this?

The requirement

It is about setting up a “Germany investment fund for the federal, state and local governments”. How exactly this is supposed to work is unclear. The title speaks for another large special fund that would have to be approved by a two-thirds majority in order to be constitutional. On the other hand, the text of the resolution talks about a reform of the debt brake, which generally allows public investments to be financed through loans in the future. But then there would be no need for a fund; The federal and state governments could then simply exempt their investments from the debt brake every year.

The difference is relevant: Both are a way around the debt brake, but in the first case there would at least be a cap. The Greens’ text is silent about a possible volume, but proposals of between 400 and 1,000 billion euros are circulating in the current discussion in Berlin. In any case, a certain volume for the fund would be agreed ex ante and this could then only be increased later with a two-thirds majority. In the second case, however, the floodgates would be open permanently and without limits: any investments could be financed with deficits – and we know from experience how flexible the concept of investment is politically.

What should be financed?

Speaking of the flexible concept of investment: The focus of the Greens’ resolution text is on public investments, of course with a green focus: rail network, cycle paths, public transport, but also housing construction, swimming pools and sports fields. We can then see that it is by no means just a matter of financing things that at least potentially increase economic growth in the long term and thus also expand the state’s financial scope in the long term.

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Rather, there is a clear danger – and the text of the group’s resolution already shows this – that all sorts of things that one would like to have, but which do not have a positive effect on the potential output, will be financed through debt. However, this primarily shifts burdens into the future and reduces financial leeway there. You leave future generations with higher interest burdens without having generated higher tax revenue.

Things are also becoming difficult when it comes to private investments. The American Inflation Reduction Act (IRA) with its massive industrial subsidies is extensively praised in the text of the resolution. And you don’t just want to incentivize private investments, you also want to control them. The fund would be an instrument of state investment management.

Does all of this have a chance?

Whatever the concrete form, the Greens need a two-thirds majority. Her proposal is unlikely to be implementable with the current coalition; it fails because of the FDP’s veto. After the next election the cards will be reshuffled and it remains to be seen whether a Union Chancellor would then like to expand his financial scope. Prime Ministers of the Union, particularly from East Germany, who are keen on subsidies are already signaling their approval of a possible easing of the debt brake. However, it would probably be more face-saving for them to agree to a limited fund instead of a permanent exemption for investments from the debt brake.

The Greens also point to support from industry associations. You shouldn’t be blinded by this: There is no doubt that people, especially in older, slower-growth sectors, are hoping that upcoming replacement investments will be financed or at least co-financed by the state via a German equivalent to the IRA. In this respect, one can understand from a business point of view that one or two industry executives get wide-eyed about a fund like this. Whether the proposal makes economic sense is another question.

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Should the fund be given a chance?

Rather not. As seen above, the very generous interpretation of what can be considered an eligible, growth-enhancing investment has already begun in the text of the resolution. And that won’t be the end of the story. A back door is to be opened here, which will allow the financing burden for today’s preferred expenditure to be postponed into the future. But as problematic as this shift in the distribution of burdens over time is (especially given the additionally high implicit debt burden in social security systems), it may not even be the main problem.

Because real misallocations occur. We all know examples of bike paths to and from nowhere, used by no one, but built because a municipality just had access to funding. Such bad investments will multiply with a large fund that has to be emptied in a limited period of time. And they won’t just be available for cycle paths.

One or two public investment ruins are annoying, but bearable. The negative consequences of government steering of private investments via the fund are potentially much more serious. For example, there is talk of “national production capacities for solar, wind, hydrogen or batteries”. The whim of the current Federal Minister of Economics to subsidize German production facilities for industries in which we in Germany, with the best will in the world, have no competitive advantage and will never have one given our location conditions, is financially supported here.

The adjustment crises of tomorrow are already being created with billions in subsidies for extremely energy-intensive green steel – or the endless need for subsidies of tomorrow. Because of course the business model will hardly be self-sustaining at German electricity prices. A capital stock is being built up with state support that will probably never be used efficiently here.

According to the Greens’ plan, the “resilience bonus” with which national solar production would be subsidized would undoubtedly also be a future investment to be financed through debt. In fact, the money would flow to uncompetitive producers of standard goods such as Meyer Burger. The successful German industrial model, on the other hand, would correspond to innovative companies that occupy niches and develop technical advances, thus achieving competitiveness in Germany without being dependent on subsidies.

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The path via debt-financed subsidies leads to an industrial landscape that will be permanently dependent on government support because competitiveness is neglected on two levels. For companies whose productive competitive pressure is reduced by subsidies. And with the state, which, as long as it can still afford it, takes the easy route of subsidies instead of the politically more difficult route of improving local conditions.

The green subsidy fund will therefore not leave future generations with a better, functioning republic. It leaves behind higher debts, it already carries the future adjustment crises in the subsidized sectors, and it also throws a large bundle of unresolved location policy reform problems at the feet of the next generations.


We can be happy that the debt brake protects us from an economic and financial policy that simply spreads the white ointment of subsidies on all problems and hopes that the day of reckoning will only come in a distant legislative period. The Germany Investment Fund is an institutionalized attempt to avoid strenuous location politics and difficult prioritization of government spending. It remains to be hoped that he will not find a two-thirds majority.

Brandenburg Technical University of Cottbus

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