We use cookies to help improve and maintain our site. More information.

December 17, 2019

The marginal impact of the Greens

We got a glimpse yesterday of the kind of impact the Greens will have on German politics. After the grand coalition agreed its climate deal in September the matter had to go to the Bundesrat, the upper house. There it was duly rejected because the grand coalition parties do not have a majority. In cases such as these, the issue goes into a reconciliation committee between the two chambers, which yesterday worked out a compromise. In political terms, this was about getting the Greens on board.

The only tangible result is an increase in the initial CO2 price in 2021 from a previously-envisaged €10 to €25. What is not changing is the single most toxic part of the agreement. This is capping the price from 2025 onwards at €55, which is already lower than the carbon prices in some markets. The Greens called the comprise a step in the right direction - a phrase we have come to equate with kicking the can down the road. The extra receipts will be used to increase the compensation for commuters, which is one priority for the SPD. As we noted before, the compensation is tied to the distance and the tax bracket. Since there is a correlation between earnings and car size, this will effectively constitute a subsidy for large cars. This year Germany saw a record number of SUV registrations, and the SUV remains the biggest growth segment in the car market.

The compromise will do nothing to help Germany meet its agreed 2030 climate goals, and to force industry to make the necessary investments. But Germany’s carbon dependence is so large that even this modest CO2 pricing structure will impact the competitiveness of some marginal producers. Small and medium-sized companies have cited Germany’s high electricity costs as one of their biggest negatives, and that problem will increase with the carbon tax. There were howls of protest from the industry yesterday. We also expect the FDP to do quite well, as it is the only party apart from the AfD that rejects any notion of carbon pricing. 

In political terms, this was a compromise between the CDU and the Greens, a foretaste of what is to come. The compromise tells us not to expect any policy radicalism, on climate as on fiscal policy. The Greens have fewer voters that need to be compensated, but we don’t see the CDU compromising much on the fiscal side. We expect the self-imposed black zero nonsense to go, as a result of which the binding limit will revert to the constitutionally-mandated maximum deficit of 0.35%. This is not an average number, and can be breached in severe recessions. But the rule is largely consistent with a deficit of near zero in the average of the economic cycle. The best we can hope for is the inclusion of a sustainable investment rule, which would temper some of the more extreme surpluses. Our expectation is that a CDU/CSU/Green government will bring gradual but small shifts.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.


Recent News

  • February 12, 2020
  • Turkey's standoff with Russia over Idlib
  • Watch out for Renzi
  • February 04, 2020
  • A glimmer of hope on EU/UK trade
  • January 27, 2020
  • How the left lays the ground for Le Pen
  • Project Fear - Irish Edition
  • January 20, 2020
  • The EU in a diplomatic bear hug
  • French pension strikes come to a halt as violence grows
  • Scholz to stick to fiscal surplus in 2021
  • January 13, 2020
  • Libya - the new playground for diplomatic posturing
  • NI has a government at last
  • January 06, 2020
  • A decade that started with a bang
  • What to expect of Spain's next government
  • Divide et impera: Macron's pension reform strategy
  • December 23, 2019
  • What’s behind the NordStream2 sanctions
  • An important ruling by the Dutch constitutional court
  • This time Popolare di Bari brings EU bank resolution into question
  • The reversal of the eurozone external balances
  • No Christmas truce in France
  • Brace for Erdogan's foreign policy ambitions
  • On the decline of the centrist left
  • December 20, 2019
  • Climate stress-testing coming soon
  • December 18, 2019
  • Wirtschaftswunder kaputt
  • December 17, 2019
  • The marginal impact of the Greens