Finance and Economy

Green New Deal – the German Perspective

As the EU’s largest economy, the decisions the economic direction that Germany takes will have a major impact on the rest of the Union. This article by the German Greens examines how this ‘engine of Europe’ can be turned green.

The socio-ecological transformation of the economy: the Green New Deal

The way we manage our economy will have to undergo a radical change. Meanwhile, this view is even shared by conservative economists and supported by the European Commission. However, as far as German politics are concerned, nothing is actually happening. Four years of financial crisis show us that an economic model based on gigantic mountains of debt and huge imbalances and in which companies, banks, even whole countries are at the mercy of the financial markets has no future. Moreover, the atomic catastrophe in Fukushima and the ever increasingly urgent warnings from climate researchers show us the insanity of an economic system that does not obtain its energy from the sources which are abundantly available – sun, water, wind. We need a fresh start – for sustainable economic development, for a socio-ecological transformation of our economic model.

Our answer is the Green New Deal

In 2008, in view of the impending financial and economic crisis we, the Green Party, demanded a Green New Deal. With the Green New Deal we suggested a concept for the ecological transformation of the economy, the re-regulation of the financial markets, for a “new social balance” in society and to combat global poverty. The first pillar aims at re-regulating the deregulated financial markets and reducing economic imbalances. The second pillar is directed at socio-ecological restructuring – by means of green industrial policies, the development of renewable energies and investment in climate protection and education. With the third, the social pillar, we are striving for good jobs, more distributive justice and the overcoming of social blockades in our society.

The question of growth re-answered

A decade has passed at the end of which the majority of people are no better off  than they were at its beginning – a decade in which all too often successful speculation and financial deals stood for economic success rather than the spirit of enterprise and development and a decade in which the over-exploitation of our natural resources has increased ever more rapidly. Angela Merkel sees it as wrong that growth is measured solely on GDP and Nicholas Sarkozy has commissioned a committee formed around the Nobel Prize winners Amartya Sen and Joseph Stiglitz to develop alternative indicators to GDP. The Green Party’s critique of growth has become predominant. It is therefore time to find new answers to the question of growth. The blind pursuit of economic growth has led us into the crises and it quite clear that we simply cannot continue in this way. The ecological limits of our planet would soon be reached. From the growth perspective it is nothing less than a question of completely decoupling economic growth from the consumption of resources, environmental common goods and from the emissions output etc. The demand for a complete separation takes into account the rebound effect since the relative separation is of no use if efficiency gains are immediately swallowed up by “increased consumption”.
However, what is equally clear is that our economic system, our social systems and our society have so far been geared to economic growth.  Just how dependent we are on growth was evident in its spectacular fall in 2009. The cuts primarily in the public sector and also in social security systems were radical and only managed with great difficulty. In the transformation of the economy therefore the permanent financing of public budgets and social security systems has to be taken into consideration. Research into an alternative means of measuring prosperity also shows that sustained social development does not necessarily mean sacrificing growth. It just has to be the right kind – sustained and socially acceptable growth.

We are tackling this with the Green New Deal. The first important steps were taken by the red-green coalition government. The last ten years have shown what great opportunities the step towards the ecological modernisation of the economy offers. The renewable energies have become an economic engine and job creator. And in many companies ecological innovation processes have been set in motion.

The Green New Deal has to involve the whole of Europe

A different way of running the economy cannot be achieved on a national level alone. We need a strong European Union promoting climate protection, ecological restructuring and social renewal. In order to transform the economy we need the euro as the common currency and a Europe that is united economically as well as politically.

The political and economic costs of the failure of the euro would be enormous, particularly for Germany.  Our exports profit as no other country from the European internal market. No single individual member state, no matter how big or small, will be able to survive alone in the face of global competition. Europeans have to act together. The way out of the euro crisis will cost money and courage. Therefore we as Greens support the current rescue measures for states in serious difficulties and as a result we are fighting for a strong economic European Union with binding agreements to co-ordinate and support  budgetary, economic and financial policies and where necessary also to impose penalties.And therefore we consistently consider the European perspective when we make our own political suggestions. We as Greens hold the enormous disparities within the eurozone largely responsible for the crisis. Reducing these disparities is therefore a basic prerequisite to solving it.

The Green Party’s critique of growth has become predominant. It is therefore time to find new answers to the question of growth.

The social and ecological restructuring of the economy

The most pressing reason for changing our economy is climate change. If mankind is to succeed in limiting global warming to below 2 degrees centigrade, then the industrial countries need to reduce over 90% of their greenhouse gas emissions by 2050. Whether CO2 is emitted in Germany, China or the USA is completely irrelevant to the atmosphere. Therefore we need a global framework that regulates the emission of greenhouse gases. It would be wrong to stand idly by while international negotiations are floundering. The developed countries, especially in the field of climate policy, have a historic responsibility to lead the way. We need a climate policy of varying speeds. That does not mean that the battle for an international climate agreement should be relinquished. But in the absence of such an agreement lack of action must not determine the agenda. Europe must act as a pioneer in the field of climate change and increase its objectives in unconditionally reducing its emissions to 30% by 2020. But above all Europe must be the driving force in switching to 100% renewables and efficient technologies.

However, it is not simply a question of climate change. It is more the fact that we are coming up against a number of ecological limitations: the over- exploitation of natural resources such as water, soil, forests or fish stocks or the overuse of finite resources such as fossil fuels (oil, gas, tar sands), metals or minerals. For industry in Germany this represents huge challenges but also new fields of activity. The Federal Republic is a successful industrial country. The economy in this country has a high degree of vertical manufacture, a substantial technical edge and a good mixture of flexible small businesses, dynamic and strong medium-sized businesses as well as globally operating corporations. Green policies want to safeguard this success which is at risk by doing nothing. We are faced with the task now of rigorously organising the transformation to a low carbon and resource-saving economic system. Only then can the consequences of climate change be limited. And it is the only way that Germany can continue to be successful as a globally competitive industrial country.

In the meantime there are many examples of what is to be gained if this path is followed. With the Renewable Energies Act (EEG) Germany made a timely start in promoting these new technologies. Today the producers of wind power, biogas and solar systems export throughout the whole world and soon 400,000 people will owe their jobs and wages to the renewable energy sector.

Those who want a presence in the world markets of the future must proceed with courage today. Our economy has all the prerequisites to face up to this challenge. Many entrepreneurs are aware of this. In this they are far ahead of the parties who claim to speak for the economy. We look upon these entrepreneurs as our partners as well as the associations of industry and business who also wish to follow us down this route. We are certain of one thing. The German economy is ready to tackle ecological reconstruction.  We want to motivate them along this path and also judge them by their promises.

During the transformation, however, it is not only a question of the ecological modernisation of the economy. We are also focusing on social renewal. Overcoming social division and achieving the participation of all is not only an act of justice. It is also economically necessary, in order to make the conversion to a sustainable economic system possible. The massive disparity of wealth and income has contributed significantly to an inflated financial sector and has therefore rendered our economic system more unjust but also more unstable. One of the reasons for the macro-economic imbalances in the eurozone – as even the International Monetary Fund criticises in its latest report – is the weak domestic demand in Germany directly due to the enormous increase of the low wage sector and stagnating wages. The skills shortage facing the German economy has its origins in the fact that our education system jeopardises the future prospects of many children instead of promoting them and that the potential of women and migrants is not sufficiently exploited.

The transformation of our economy will be a project lasting several years. Even greater then is the importance of reliable long-term goals and frameworks which provide security for companies when making innovation and investment decisions. Therefore we as Greens want the necessary climate protection targets – 40% emissions reduction by 2020, 95% by 2050 – to be legally enshrined in a climate protection law and  the Government to commit itself to increased efforts in climate protection in the case of  deviating from the target path. At present it can be seen in North Rhine Westphalia [i] that only the Greens guarantee a clear regulatory framework in the form of a climate protection law. In spite of great political and economic resistance initially, a first climate change bill was introduced there with binding CO2 reduction targets.

Ecological fiscal reform: tackling incorrect prices

The idea of ecological fiscal reform is simple: prices must tell the ecological truth. Those who produce and consume in an environmentally friendly way should pay less than those who pollute the environment and climate. Our goal continues to be increasing the proportion of ecological taxes in the total tax revenue. In recent years, however, this has even decreased. We want to reverse this trend.

It seems consistent to reduce environmentally harmful subsidies and tax breaks such as for fuel, electricity and heating energy but also to adjust the conditions pertaining to the awarding and tendering process for public authority contracts. As far as it is legally possible we want to abolish the anti-social privileges for huge gas-guzzling company cars. We want to put an end to coal subsidies and do away with exceptions for mining royalties in respect of all domestic mineral resources such as gravel, sand, brown coal and gas (….).                                                                                                                                           

Strengthening SMEs

This way out of the crisis is only possible with highly productive small to medium sized enterprises (SMEs). Nevertheless the black-yellow coalition pursues a policy whereby these are only an appendage to big business. However, this does not do justice to their special role. The economic success of Germany is mainly due to strong small to medium sized businesses. Without its strong SME sector Germany’s economy would have shrunk considerably more, would have had higher unemployment and would not have returned to the growth path so quickly.

The blue-collar worker is becoming green

The share of manufacturing industry despite the shift to the service industry and a knowledge-based society is still 24% of the total  gross value creation with a turnover of more than 16 billion euros annually and with a workforce of six million. The transition to a low carbon, resource efficient economy must above all involve the industrial structures. They still account for a third of CO2 emissions and there is still great potential for energy savings and efficiency gains. This transition process is nothing less than a third industrial revolution. The first industrial revolution brought the transition from the agrarian to the industrial society. The second industrial revolution intensified and mechanised production. Today it is time for a third industrial revolution in which the people, the environment and the climate are central.

In order to transform the economy we need the euro as the common currency and a Europe that is united economically as well as politically.

Green industrial policy means the ecological reconstruction of the productive economy rather than leaving it the way it is. We do not rely on cementing the old structures; we want to make the economy fit for the future in all sectors. (….). Singling out industries into good or bad is pointless. We want to give impetus to industrial production as a whole to renew itself from the perspective of energy and material efficiency and to promote pioneering technologies – whether it is renewable energy, the car, chemical or manufacturing industry. (….).

Advent of the service and knowledge-based society

With the Green New Deal we are promoting not only ecological modernisation but we also have our sights set on a gradual shift of our values to a humane and ecological economy. By investing in education and a modernisation of the social security system and by means of an honest social labour market we will create jobs which reflect the quality of a social state: in the health-care sector and in education. (….).

Technology alone is not enough

Ecological transformation is not a project that is only directed at the economy but is one that concerns us all, the whole society. Transforming the traffic problem will take more than the green car – it requires at least just as much traffic avoidance by state development planning (….) and the shift of traffic from road to rail. The change in agriculture will not only strengthen organic farming but will also have to include a change in our dietary habits. And a more careful use of our finite resources will require not only more efficient use of resources but also a farewell to the throwaway society. Basically it is a question of how we will consume, move or feed ourselves in the future.

We all enjoy life-styles today that can neither be sustained nor adopted by the 7 or soon to be 10 billion world population. Prevailing customer behaviour combined with unbridled economic growth cancels out any gains made through efficiency and economising as a result of the rebound effect.

Developing new sustainable life-styles is not a task that can be delegated to politics, nor should politics claim to be able to solve it alone. At the same time, however, it is much too easy to impose the responsibility on each individual alone as structural barriers make it all too often virtually impossible for people to sustain themselves alone. Policy can and must therefore support this process through consumer information and consumer protection by creating alternatives or by preventing unecological behaviour from actually being rewarded. Ultimately the task remains to develop sustainable life-styles, a task both social and civic. It is our own decision how we live.

Close the financial casino

We need the dynamism and the power of innovation of functioning markets to overcome the challenges of climate change and to combat global poverty. The great transformation of the economy requires substantial investment that the public sector cannot shoulder alone. We need more capital that still circulates around the globe to be injected into these socially useful areas. Green investment rather than speculation – that is our goal.

With these financial casino conditions as they are ecological restructuring will not progress. It is therefore time to create an effective regulatory framework for the global economy which will put the markets at the service of social and ecological development. We want to introduce a European financial sales tax which will involve the finance sector in the financing of  welfare and put a break on speculation.. (….).

We want banks to focus above all on the financing of a real economic, sustainable development. We want to effectively limit the size of banks. (…). Therefore we are calling for a significant increase in liquidity and capital requirements according to the size of the bank.. We need a debt brake for banks, that is to say an unweighted minimum threshold for shareholders’ equity. The idea is to prevent banks with too little equity from increasing their returns as this leads to increased systemic risk i.e. the danger of financial crises.

Financing ecological restructuring

Investment usually flows to where (high) profits are to be expected. In the absence of a political framework which penalizes the perpetrators of climate and environmental destruction investments in unsustainable areas are often more profitable than sustainable ones. For example 100 billion dollars are easily available for the development of Canadian oil sand. On the other hand investments in profitable efficiency measures fail due to necessary bank loans.

During the transformation, however, it is not only a question of the ecological modernisation of the economy. We are also focusing on social renewal.

This trend is reinforced even further due to the wrong kind of subsidies – the countries of the world persist in spending 500 billion dollars on environmentally harmful subsidies. However investment in the great transformation is lacking not only due to the absence of a framework at the macro level. Sustained investment from the investors’ point of view brings more risk and problems. Therefore we need fiscal strategy and planning. Here public investment and development banks like the European Investment Bank, state owned investment banks or the KfW[ii] can have an important role to play. Thanks to government guarantees they can refinance themselves on favourable terms on the private capital market. These banks have to become more green-orientated and take a key role in the ecological transformation. In addition, political policies must try to reduce the risk for investment in ecological change. As well as regulatory measures there need to be new financial products that meet the specific investment risks of ecological transformation. In the first instance private participants are required here. But state guarantees and support could also be necessary. At European level we as Greens support the proposal of the EU Commission for the introduction of project bonds – above all we want to use this instrument for the financing of projects relating to ecological restructuring (e.g. the development of trans-European networks). Good financing conditions are essential for green investment in companies. We need the banks operating in their proper function, that is to say the financing of real investments in the implementation of green investment projects. (…..).
We also need a return to long-term corporate development. As long as the rage for short-term high yields prevails, long-term sustained investments in climate protection and sustainable modes of production suffer. Responsible investment is different. It takes ecological, social and ethical aspects of investment decisions into consideration. Information requirements for asset managers and companies should enable investors to invest in accordance with social, ethical and ecological criteria. Public funds, as for example in the form of statutory pension provisions, funds of the federal employment agency or pension funds in public ownership should only be allowed to be invested according to established sustainability criteria.

A just transformation

The inequality of income and wealth distribution in Germany has been growing for decades without interruption. The global financial crisis has made the situation even worse: Whilst the temporary losses of the wealthy have long since been over-compensated, the low and middle income earners have borne the main burden of the crisis. The growing inequality of income and wealth is also an economic problem. It is the deeper cause of our debt-based economic model.

Therefore with the Green New Deal we are striving for a “new social balance” in society that seeks justice regarding opportunity and distribution. This requires a reform of the distribution systems, extensive investment in education and deep reforms of our economic policies. The distributional effects of a market system, in which increasingly so only a few of the large corporations are paving the way cannot be absorbed by even the best social system. Therefore reforms in the financial and labour market and a consistent competition policy are necessary. We want an equitable distribution of social welfare and the opportunity for each individual to participate. Corporate profit and capital income have risen while wages in real terms have stagnated. We want a fair share for the work force. In the first instance it is the task of union and management to finally agree to higher wage settlements. But politics can do a lot, especially in the struggle against an ever-expanding low-wage sector. It is not a question of indifference of what is produced and how it is produced – neither from a social nor ecological point of view. The ecological transformation can only succeed with a highly motivated and well-qualified work-force. In conjunction with employers and unions we want to create good jobs, jobs which do not cause illness, which give personal satisfaction and motivation and which leave workers time for their families, their private lives, further education or voluntary work and rewards them appropriately. So-called “blue-green alliances”, in other words the strategic alliance between trade unions and environmental groups as already exist in North America could also play a pioneering role in this process in Europe. Good jobs involve many aspects: more training in the work-place, flexible working-time models as for example through the introduction of life-time working accounts, support in combining children and work or a share of company profits.

But it is not only about a more equitable distribution of income and wealth. If we want to secure Germany’s future – economically and socially – we have to ensure that everyone has the chance to participate. In view of the demographic change no-one can be excluded – not those children who currently have no chance in our education system, nor the older workers who continue to be affected by an above-average frequency of unemployment and long-term unemployment, nor women whose equal participation of income and opportunity is far from being enforced. We support a mandatory quota of at least 40% women in supervisory boards and boards of directors of large corporations. We want better opportunities for immigrants, flexible working-time models suited to all life-stages and good training and further education.
And it is a question of reacting to social hardship caused by transformation. When we as Greens say, for example, that energy prices are supposed to reflect the ecological truth, that means that prices are more likely to rise. For us it is about fair energy prices, not excessive prices caused by rip-offs, monopolies and speculation. But for many people rising energy prices are a social challenge and sometimes even beyond their means. Our Green answer to rising energy prices is energy efficiency and competition among providers, not through subsidising energy consumption.

If energy prices rise and if energy and mobility are to become a luxury that is prohibitive for considerable parts of society, income and wealth distribution must as a whole become fairer. Therefore in addition to ecological modernisation, the social dimension is an essential part of the Green New Deal. That includes government transfers, the strengthening of public institutions, minimum wages, but also the tax system and the labour market policy. But it is also a question of well-targeted support for households that cannot afford energy efficient refurbishment. For this purpose we want to set up an energy conservation fund to support energy efficient refurbishment in areas with a high proportion of low- income households, to offer power-saving checks to low-income households and give housing subsidies to housing benefit recipients for the energy efficient refurbishment of their accommodation and to make socio-ecological electricity tariffs mandatory for utility providers. We are faced with a daunting task that will not be made any easier by further delay. Alliance 90/Greens invite everyone to take on this challenge together with us and to transform our society socially and ecologically.

 

Notes


[i] The German Greens are in the majority of this important (17 million inhabitants) German state

[ii] KfW banking group is a German government-owned development bank. Its name originally comes from Kreditanstalt für Wiederaufbau, meaning Reconstruction Credit Institute.

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