I’ll tell you about the chaos in Germany regarding public finances
How is discussed in the Scholz government after the ruling of the Karlsruhe Court
Christian Lindner's Liberal Democrats draw red lines. The Greens of Robert Habeck and Annalena Baerbock imagine breakthroughs. And Chancellor Olaf Scholz tries to mediate and steer the increasingly unstable vessel of the traffic light government out of the waves caused by the Constitutional Court.
A sentence like a storm, that of the Karlsruhe Court pronounced a few weeks ago , which removed the treasures from the special coffers created by the government in an attempt to keep all its contradictions inside: those of the liberals who did not want official breaches of the debt brake, those of the Greens who had to finance the costs of the energy transition and those of the social democrats who wanted to fuel social spending to stem inflation.
THE KARLSRUHE COURT BLOCKS THE SCHOLZ METHOD
The Karlsruhe ruling has made this financial magic much more difficult: for example, the Court declared unconstitutional the transfer of 60 billion euros of unspent debt intended to combat the effects of the pandemic to the KTF, the Climate and Transformation Fund , and told the government that it could not keep the debt incurred in year X to spend in year Y. Much of the “Scholz method” was based on exactly this.
In the end the rope broke, or rather the Court severed it cleanly. And Scholz has deployed the only art in which he seems to have become a champion: that of the good cashier. Having received a slap from the high judges, the chancellor ended up in the sights of the newspapers. Spiegel, once the bible of social democracy, was merciless, dedicating last week's cover to him with the title "The fall of a know-it-all" ( Absturz eines Besserwissers ). Then Scholz showed the smile of better times at the outburst given to him by the leader of the Christian Democratic opposition Friedrich Merz on live TV, in one of the most heated parliamentary clashes of this legislature.
Merz, who has a bad temper but understands economics, treated him and all his ministers as incompetent ("a plumber of power"). And he ridiculed them in a fiery speech, pointing at them one after the other in the ministerial benches where they were sitting, and declaiming with pleased sarcasm to the virtual audience of voters that those modest personalities truly represented the government of the fourth economy world.
Scholz smiled, but now his apparently imperturbable Hanseatic character must contend with more than squaring the circle, starting with the 2023 and 2024 budgets which must be reshaped after the ax of the Constitutional Court.
THE DEBT BRAKE
And everything now seems to center around the debt brake, the Schuldenbremse, the rule according to which the government must limit new loans to 0.35% of GDP, inserted into the Constitution in 2009 at the end of the first Grosse Koalition government led by Angela Merkel . Joys and sorrows of this measure: the debt brake brought German public debt down from 82.5% of GDP in 2010 to just under 60% in 2019, before the crises of the pandemic, the war in Ukraine and the energy required its suspension. But it also meant that during the fat years, when loans for the Germans would have been very convenient indeed, Germany did not make the urgently needed public investments: in its crumbling armed forces, thus regularly missing the target agreed with NATO spending 2% of GDP and finding itself today with embarrassing security, but also in infrastructure, schools, digitalisation and much more.
So much so that even a conservative newspaper like the Frankfurter Allgemeine Zeitung today underlines in an editorial that alongside the truth that the debt brake saves future generations from too burdensome financial commitments there is also the truth that it gives them a backward country, devoid of modernization necessary to keep up with international competition. The disaster of recent weeks at the Deutsche Bahn, the German railway, is just one example of the consequences of lack of financing.
THE NEGOTIATIONS
Meanwhile, the Liberals, who had to bite the bullet of giving up on the return of the brake for 2023, have now marked its return in 2024 as the insurmountable red line to remain in government. This is the other promise made during the election campaign, not to increase taxes on citizens. The FDP, in fact, was working on easing the situation. And in any case, Lindner said in an interview with Faz , no euro for the new budgets should come from taxpayers' pockets.
The negotiations are therefore complex, so much so that Habeck had to cancel his trip to Dubai to speak at the climate conference. The Green minister said he was optimistic about the possible compromise, but these days it is difficult to distinguish propaganda from truth. Just a few weeks ago, Habeck had launched a proposal to be developed for the next legislature which included giving up the debt brake. Now this discussion has become tremendously relevant. His support came from a report from the scientific committee of the Ministry of Economy, the essential points of which were anticipated by the Handelsblatt , in which he hopes for a broad adjustment of the debt brake.
The independent committee argues that the debt brake, in its current form, contains “false incentives”. It does not ask for its abolition, but for a substantial reform. With the creation of a sort of Golden Rule Plus: the State can borrow for investments that are not subject to brakes.
With the creation of an "Investment Promotion Company", the State undertakes to make a fixed sum available each year to be used exclusively for investments.
The advisory committee also criticized the current financial policy and practice of special funds: an “unsustainable” practice, an attempt to “mask” real financial needs.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/germania-sentenza-corte-karlsruhe-governo-scholz/ on Tue, 05 Dec 2023 06:29:41 +0000.