By Michael Nienaber
BERLIN, Sept 11 (Reuters) - German Chancellor Angela Merkel's coalition government is split over the creation of a climate foundation that would aim to attract funds from citizens by issuing 'green bonds' with state-subsidised interest rates.
Economy Minister Peter Altmaier, a close Merkel ally, has floated the idea of such a climate foundation into which Berlin could initially inject 5 billion euros ($5.51 billion) and then 1 billion euros per year.
The non-profit body would issue interest-free loans for climate protection projects - up to a maximum of 50 billion euros - with the aim of reducing Germany's carbon emissions.
It would also collect money through "citizen bonds" that would offer a guaranteed interest rate of 2% for savings of up to 2,500 euros with a maturity of at least 10 years.
Alexander Dobrindt, a senior lawmaker from Merkel's Bavarian CSU allies, has proposed a similar climate protection bond, in an effort to smooth Germans' frustration over the European Central Bank's ultra-loose monetary policy of zero interest rates.
At an internal meeting of the conservative CDU/CSU parliamentary group, Merkel signalled her support for Altmaier's proposal, two people familiar with the discussions said.
Finance Minister Olaf Scholz from the Social Democrats, the junior partner in Merkel's coalition, rejected Dobrindt's idea at a joint meeting of coalition budget lawmakers last week, two other people told Reuters on condition of anonymity.
Merkel's conservatives also disagree over the plan.
"So far it's not clear how Altmaier's proposal fits into the broader package for climate protection," Merkel's chief budget lawmaker Eckhardt Rehberg said.
Rehberg said the additional climate protection measures should be financed without new debt and without the savings of citizens through such state-subsidised bonds.
"We should not compete as a state with the banks and we should not take over the business of lending, especially not under market-distorting conditions," Rehberg said.
A SPD lawmaker struck a similarly critical tone.
"This model is not only expensive and undermines the constitutionally enshrined debt brake," said the lawmaker who spoke on condition of anonymity. "It also collects money that we don't need. There simply is no lack of public funds right now."
Germany's constitutionally enshrined debt rules, also known as the debt brake, allow a federal budget deficit of up to 0.35% of gross domestic product (GDP).
The critics of the 'green bonds' idea argue that the government's borrowing costs are currently negative. So they doubt the need for the government to collect private money from citizens and then pay for a state-guaranteed bond yield of 2%.
Conservative and Social Democratic leaders are expected to present a far-reaching package of climate protection measures on Sept. 20.
($1 = 0.9079 euros) (Editing by Gareth Jones)
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