August 8, 2019 / 2:36 PM / 13 days ago

EXCLUSIVE-Germany eyes fiscal U-turn to finance climate protection plan -official

* Finance Ministry may ditch no-new-debt policy -official

* Coalition to seal costly climate package on Sept. 20

* Gov’t would limit new debt to climate measures -official (Adds senior coalition member, ministry statement, background)

By Michael Nienaber

BERLIN, Aug 8 (Reuters) - Germany is considering ditching its long-cherished balanced budget policy to help finance a costly climate protection programme with new debt, a senior government official said.

Chancellor Angela Merkel’s government has managed to increase public spending without incurring new debt since 2014 thanks to an unusually long growth cycle.

But as the country’s borrowing costs sink to new lows almost daily and its economy cools, domestic and international calls to provide extra fiscal stimulus by running a small deficit again are becoming louder.

“The challenge now is how to shape such a fundamental shift in fiscal policy without opening the floodgates for the federal budget,” the official, with knowledge of internal discussions in the finance ministry, told Reuters on condition of anonymity.

“Because once it is clear that new debt is no longer taboo, everyone raises a hand and wants more money.”

For that reason, Berlin would link and limit any new debt strictly to the climate protection package which Merkel’s cabinet is expected to seal next month, the official said.

Merkel’s coalition government wants to cushion the effects of a planned exit from coal over the next two decades by pouring at least 40 billion euros into affected regions and help them manage the shift away from fossil fuels.

The coalition’s junior partner, the centre-left Social Democrats (SPD), are also advocating introducing payouts to cushion the social effects on low-income families of a new carbon emissions pricing system.

A finance ministry spokesman declined to comment.

But he pointed to a ministry statement saying the fight against climate change was a huge challenge that the government wanted to tackle with “full force”.

The ministry wanted to agree the next steps at the climate cabinet’s next meeting on Sept. 20, and a lot of money was available to finance the measures, it added.

The statement did not rule out the issuance of new debt after German media also reported that such a move was an option.

“The black zero (balanced budget) is no longer tenable,” a senior SPD member told Reuters. He pointed to additional costs of planned climate protection measures which had already added up to more than 30 billion euros ($33.6 billion).

Under a constitutional amendment, the federal government is allowed to borrow new debt up to the equivalent of 0.35 percent of gross domestic product - equivalent to roughly 5-10 billion euros per year.

($1 = 0.8930 euros)

Reporting by Michael Nienaber; Additional reporting by Christian Krämer and Holger Hansen; Editing by Madeline Chambers and John Stonestreet

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