By Michael Nienaber

BERLIN, (Reuters) – Germany’s coalition parties agreed on a fiscal plan to boost their electoral firepower. They extended the repayment term for coronavirus loans and bolstered the climate investment fund by a budget move.

The budget plans by Chancellor-in-waiting Olaf Scholz, as presented by the three parties in their joint coalition deal on Wednesday, confirmed an exclusive Reuters report from earlier this month.

They will be able to keep the parties from creating un-budgetized investment vehicles. These were originally proposed as an alternate idea to get around debt limits.

Scholz’s center-left Social Democrats, the Greens, and the probusiness Free Democrats face an enormous spending problem. In their coalition agreement, they agreed that debt levels would be reduced starting in 2023, and tax increases will not be allowed.

The parties will use the Constitution’s emergency clause to stop the default of the debt in order to create fiscal flexibility. They also plan on using the Debt Brake Rule in the Constitution for the third year in a row. This would allow them more financial leeway than they originally planned.

According to the agreement, the three sides agreed to reform Germany’s coronavirus debt repayment plan and to align it with the more flexible repayment plan from the European Union’s recovery funds.

Germany’s next coalition government is expected to delay coronavirus debt payments by five more years starting in 2028. The repayment time will be extended from 2 to 3 decades to 2058.

According to sources, this will increase the Federal Budget’s space by 2 billion Euros per Year starting in 2023 and almost 10 billion Euros per Year beginning in 2026.

CLIMATE FUND

Parties also agreed to supercharge the government’s Climate and Transformation Fund with funds from existing budgeted and unutilized credit authorizations via a supplementary buget this year in order to support additional climate protection and economic transformation measures.

The parties stated that the goal was to fight the effects of the coronavirus epidemic and simultaneously the risks to recovery of the economy, public finances and society caused by the global crisis.

They stated that the EKF will be responsible for financing national and international climate protection measures as well as the transformation of economy including the promotion of climate-friendly mobility.

According to the parties, “With the federal budget (2022), we will look at how we can further enhance the climate and transform fund within the frame of the constitutional possibilities.”

Jens Suedekum from the Heinrich Heine University Duesseldorf is an economist who said that this budget maneuver would permit the ruling coalition increase the EKF next year when the debt brake remains suspended and use the funds to make public investments over the following years.

An insider familiar with the plans stated that the Cabinet would need to pass the 2021 Supplemental Budget before the end this year. But, Parliament could still approve it later.