Germany’s Finance Minister wants to lift debt cap

Financially-stricken towns in Germany are to have their debts taken on by the federal government, if Finance Minister Olaf Scholz gets his way.

But it might not be that easy, since the move would break a taboo in Germany’s debt-averse conservative government that has been enshrined in the constitution since 2009, when a “debt brake” was written into the Basic Law in the aftermath of the European financial crisis.

Die Zeit newspaper reported on Wednesday that Scholz, who is also Vice Chancellor to Angela Merkel, is planning to present a plan in March that would temporarily allow some 2,500 municipalities to pass on their debts to the federal government. 

The scheme is meant to free up resources to allow local governments to invest more in roads, schools, and hospitals, the report said. While many small towns struggle to pay for insfrastructure, the federal government has some capacity to spare: In January, Germany posted a record-breaking budget surplus.

The Finance Ministry would not comment on the press report, though it was also independently reported by Der Spiegel. Both outlets cited unnamed ministry sources.

The black zero

The debt brake meant that as of 2016, Germany’s federal and state governments were not allowed to run a budget deficit of more than 0.35% of GDP, though exceptions can be made in the event of natural disaster or economic crisis.

The brake has manifested itself recently through the so-called “black zero,” the colloquial name for the German Finance Ministry’s insistence on maintaining a balanced budget without taking on new debt.

Scholz has been committed to maintaining the policy, at least until now, despite being a member of the center-left Social Democrats, some of whose members are skeptical of the black zero.

But the move promises a political headache: Scholz may have trouble getting the plan through parliament without putting another crack in the government coalition.

Support from government ranks is not at all secure, and members of Angela Merkel’s center-right Christian Democratic Union (CDU) have already voiced criticism.

“You can’t just suspend the debt brake at your convenience, just as you can’t suspend basic rights,” CDU Bundestag member Eckhardt Rehberg told the Frankfurter Allgemeine Zeitung on Wednesday. “Scholz has no majority for breaking the dam. He should bury this project quickly.”

Not only that, altering the constitution requires a two-thirds majority in both chambers of parliament, the Bundestag and the Bundesrat, which would mean that, even with CDU support he would need opposition votes to pass the bill.

bk/aw (AFP, dpa)

• The black zero: Germany’s love affair with austerity

  Have your cake

  Germany’s appreciation for penny-pinching to ensure it doesn’t rack up fresh debt has elicited many wacky and bizarre homages. Seen here is a “black zero” cake presented to the state parliament of Lower Saxony by the pro-business Free Democrats (FDP).

• The black zero: Germany’s love affair with austerity

  Father of austerity

  Former Finance Minister Wolfgang Schäuble is “the face” of the black zero. His 2014 financial plans led to Germany not taking on new debt for the first time since 1969, resulting in a balanced budget. It was achieved by financing spending hikes solely with revenues while reducing public debt.

• The black zero: Germany’s love affair with austerity

  The ‘debt brake’

  Germany’s constitution was amended to include a “debt brake,” (“Schuldenbremse”) in 2009, despite economists largely agreeing that it does not reduce economic volatility. German states are now not permitted to run any structural deficits, and the federal government can only run a structural deficit of less than 0.35% of GDP.

• The black zero: Germany’s love affair with austerity

  Debt or guilt?

  It is something of a linguistic testament to a cultural truth that the German word for debt, Schuld, is also the word for guilt. Germans are content to live with decaying infrastructure, renting instead of buying, and not having modern-style credit cards if it means reducing debt. Here, Baden-Württemberg’s Finance Minister Nils Schmid celebrates the black zero with a statue.

• The black zero: Germany’s love affair with austerity

  Black zero questioned

  As Germany is thought to be heading towards recession, the wisdom of a balanced budget is being challenged. Germany’s resistance to spending and investing has created an economy with little room for innovation, expansion, or for startups to flourish. According to the keenly watched ifo Business Climate Index “not a single ray of light was to be seen in any of Germany’s key industries.”

• The black zero: Germany’s love affair with austerity

  EU neighbors suffer

  Germany’s penchant for a balanced budget not only hinders investment in Germany, it also impacts its neighbors. As an export-driven economy, Germany profits from exporting goods, but insufficient re-investment of all that extra capital, paired with a low-wage policy that stymies spending, means the surplus remains stubbornly high, at the expense of other EU countries.

• The black zero: Germany’s love affair with austerity

  Point of pride

  Across Germany, being debt-free has been marked with several strange celebrations, including members of Merkel’s Christian Democrats (CDU) posing with a cardboard cut-out of a black zero with a smiley face, and the Finance Ministry for the central state of Hesse installing a large new black zero statute. Here, the city of Dusseldorf keeps a clock marking how many years it has been debt-free.

  Author: Elizabeth Schumacher

Article source: https://www.dw.com/en/germany-s-finance-minister-wants-to-lift-debt-cap/a-52547757?maca=en-rss-en-ger-1023-xml-atom