By Michael Nienaber

BERLIN, (Reuters) – The parties that will form Germany’s next government are looking to boost public investments in green technology and digitalization while returning to tight debt limits starting 2023. According to a deal made by the coalition seen by Reuters Wednesday.

Social Democrats, Greens and Free Democrats from the centre left agreed to consolidate the European Union’s economy and monetary union and indicated an openness for reform of the bloc’s fiscal rules (also known as Stability and Growth Pact).

Christian Lindner (42) will take over as Germany’s finance minister. This 42-year-old party leader from the fiscally more conservative FDP has promised to quickly return to sound public finances and lower public debt in the euro area.

“The Stability and Growth Pact, (SGP), has demonstrated its flexibility. “This is why we need to guarantee growth, sustain debt sustainability, as well as ensure climate-friendly and sustainable investments.” The coalition agreement stated.

To make the rules more effective in meeting the changing challenges, the future development of fiscal policies should take into account these goals. “The SGP must be made simpler, more transparent and easier to enforce,” read the document.

All three sides agreed that the EU’s debt-financed Recovery Fund, which was created to aid the bloc in the coronavirus crisis, should remain an impulsive instrument with a limited volume.

Concerning the European banking sector: The parties agreed to finalize the bank union in certain conditions, to increase economic growth and global competitiveness.

The coalition agreement stated that “as part of the comprehensive package for financial services we are prepared to create an European reinsurance scheme for national deposit guarantees schemes where contributions can be strictly differentiated on risk.”

It stated that this requires further reductions in risks to bank balance sheets and strengthening the resolution system. This also preserves the security of savings banks with clear goal of avoiding any additional burden on smaller and medium-sized banks.

“In addition, measures must be taken to minimize the state/bank nexus. This will effectively stop an excess concentration of government bonds onto bank balances. “A complete communitarization of European deposit guarantee systems is not our goal”, the coalition document states.

Italy has significant domestic bonds holdings and opposed German proposals that limit exposure euro-zone banks to the debt of one sovereign. Instead it has advocated for an European Deposit Insurance Scheme (EDIS).

Lucas Guttenberg is the deputy director of the Jacques Delors Centre Berlin. Guttenberg said, “This agreement is good news to Europe and the Euro Zone.”

“It opens the door to adapt the EU’s fiscal rules to the new reality; it mentions the right goals for such a reform; and it avoids prematurely drawing red lines. Now it is up to the rest of the EU to take the new government by its word,” Guttenberg said.

They also promised to listen to people’s worries about rising inflation.

The coalition agreement stated that “The ECB will be able to best execute its mandate which is primarily dedicated towards the goal of price stabilization”