The leader of the Liberal Party (FDP) Christian Lindner did not manage to be sworn in as finance minister and immediately submitted an additional budget for 2021, proposing a “redistribution” of funds, which he would criticize until now, while still in opposition: Euros from the budget to combat the economic effects of the pandemic, which were not absorbed in 2021, are transferred to another credit line to finance climate protection measures. “This money is necessary for the transformation of a large industrial nation into a climate-neutral economy,” the new finance minister explained, recalling that this was one of the main pre-election declarations of the three parties that make up the new ruling coalition under Socialist .
This is a regular maneuver that provokes reactions. The German Taxpayers’ Association notes that, as a rule, “creating a reserve through debt” is considered problematic. Criticism of the Christian Democrats (CDU), who took over the opposition after the September elections, is even more intense. “I want to make it clear that, in my view, this supplementary budget is unconstitutional,” said Christian Haase, a spokesman for the party, adding that the “redistribution” of funds was nothing more than a circumvention of the constitutionally guaranteed to reduce public debt. “This supplementary budget is the beginning of the end for the ‘debt brake’ and this decision bears your name,” Haase said, addressing the new finance minister personally.
The difficulties of the new governing coalition
At that time, Christian Lindner was immersed in reading his files and did not respond to the outspoken speech of the opposition representative. It is obvious that the liberal politician is in a difficult position. Still in opposition, for many years he insisted that Germany must abide by the “debt brake” that is a constitutional provision and explicitly stipulate that state expenditures must not exceed its revenues – with the exception of a limited fiscal framework. maneuvering. Due to the pandemic, which is an extraordinary if not unprecedented condition, the “debt brake” has been suspended until the end of 2022. Christian Lindner insists that he will return from 2023.
But is this prediction realistic? In the coming years, the ruling coalition will need huge sums to deal with the economic impact of the pandemic, but also to fund policies to combat climate change. The German Trade Union Confederation (DGB) is talking about 50 billion euros a year. Christian Lindner has to raise that amount, but most of the budget spending is rather inelastic. Regular social spending already absorbs 50% of the total. There is no question of cuts. Tax increases have been ruled out by the Liberal Party itself. Consequently there is no alternative to new lending. But Germany has already borrowed huge sums. While in the period 2014-2019 the state budget remained balanced, in the next two years the debt skyrocketed from 400 billion to 1.4 trillion euros. In fact, if the debts of local states and local authorities are added, the total amount is close to 2.4 trillion.
New budget, new debts
The initial announcement that the extra debt to fight the pandemic will be repaid within 20 years is already a thing of the past. The program agreement for the new government explicitly provides that the repayment period be extended to 36 years. For 2022 it is considered certain that the new lending will continue. As finance minister in the previous government, under Angela Merkel, Olaf Solz has already budgeted a “new debt” of 100 billion euros, but so far no final decision has been made. All ministries are invited to submit proposals by February 25th and the relevant decision of the cabinet is expected on March 9th.
Now the Ministry of Finance. seeks to cut costs where possible. In a letter to ministers shortly before Christmas, Christian Lindner called on his colleagues to use every “margin” to save money and not to insist on “unrealistic announcements”. However, emergency financial assistance to the private sector due to a pandemic will continue in 2022. According to the Ministry of Finance, financial assistance of 58 billion euros in the form of loans or guarantees has already been disbursed. After a one-year grace period, repayments should theoretically begin in 2022, but this is rather impossible when the pandemic is prolonged and requests for additional financial assistance increase.
Challenges at European level
The pandemic is only one of the variables of the difficult equation, which the new Ministry of Finance is called upon to solve. At the same time, the effort for the ecological and digital transformation of the German economy must begin as soon as possible. As he pointed out, “the uncertainties and constraints of the pandemic have canceled significant investments in modernizing the economy,” but “we must not waste any more time.” Christian Lindner knows that the implementation of the necessary investments will trigger higher growth rates, increasing tax revenues accordingly. On the same wavelength, Chancellor Olaf Soltz has pointed out that “it does not make sense to make cuts in times of crisis, instead you should facilitate the provision of aid and investment funding in order to get out of the crisis.”
After all this, it is interesting to see how Christian Lindner will position himself in the forthcoming pan-European debate on fiscal discipline. Prior to the election, he had raised fears in many southern European countries that he would stick to a hard line. Now, however, his decision to “pass” an additional budget by redeploying funds to Germany itself raises completely different expectations. This was evident during his visit to Paris, with his French counterpart Bruno Lemerre “congratulating” him on this decision. Other European capitals have already issued a “warning” to Chancellor Olaf Solz, as well as to “Green” Vice Chancellor Robert Habeck, not to implement austerity policies in the EU.
DW / Sabine Kinkarts / Editor: Giannis Papadimitriou
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