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From Inflation to Recession: Is Germany’s Prosperity at Risk?

  • July 05, 2022

“I could imagine joint European purchasing and clear price declarations for gas,” says Green Party budget policy expert Sven-Christian Kindler. He also has the backing of fellow Green Party member Anthon Hofreiter. “We could trim the exorbitant profits of the corporations with price caps or purchasing cartels,” says Hofreiter, who is the head of the European Affairs Committee in the Bundestag. “And when it comes to imports from Russia, we transfer less money to Putin for his war chest.”

Among the SPD and the Greens, there is also a growing desire to have companies and the rich share the costs of the crisis. There could be, for example, an excess profits tax. The special tax would be levied on corporations that benefit especially from the situation on the energy markets. But the FDP has so far rejected the idea, citing the coalition government agreement.

Top Earners on the Radar

But SPD General Secretary Kevin Kühnert says he doesn’t want to accept that. “The situation has changed dramatically since December,” he says. “An excess profit tax would be fair and would be in line with the coalition agreement: no additional burden on top earners in the middle of society.” Politicians in the left wing of the party go even further, taking aim at top earners. “We need to talk about taxing very high incomes, because the government’s relief measures need to be financed somehow,” says Wiebke Esdar, the head of the SPD’s left wing in parliament. She also sees it “as a start to redistribution and a sign of fairness in times when people are afraid they won’t be able to pay for their heating or food.” Party youth wing head Rosenthal says she would like to see a “crisis solidarity payment from top earners.” She also advocates a wealth tax and an increase in the inheritance tax.

Similar tones are coming from the Green Party. “We need a redistribution of hardships,” says Katrin Göring-Eckhardt, the vice president of the Bundestag for the Greens. “The rich and those who accumulate excess profits will have to give up something. We are all the state and that also means that everyone has to contribute. Anyone who calls for people to work overtime like the finance minister has not understood what this crisis means for the hard-working populace.” Meanwhile, referring to the FDP, Green Party co-chair Lang says: “We all have to question old certainties. We Greens have shown that in (support for) arms shipments and LNG terminals,” for example.

Lindner and his FDP, however, reject tax increases – even more firmly than usual at this point in time. Their argument is that economic growth is weakening noticeably because of the war in Ukraine, and higher taxes would be toxic for the economy.

Lindner and his FDP are particularly allergic to the proposal by the SPD and the Green parties to raise taxes on the highest bracket, which applies to most companies. By international standards, Germany is already a high-tax country for companies. The defensive reactions against a wealth tax are even greater. The FDP considers it to be particularly harmful from an economic point of view because it also applies when a company posts losses. In addition, it is administratively costly, but doesn’t yield much by way of fruit.

Annoyance with the FDP

Within the SPD leadership, there are currently few illusions about the chances of a wealth tax getting approved. Kühnert says he understood the FDP during the campaign to mean that it wanted to ease the burden on the working middle class. “Now, however, we are in the unfair situation of having to pay additional health insurance contributions on normal income because the FDP doesn’t want to impose an excess profits tax on those who profit from the crisis.” He also wonders “whether this can really be the last word from the liberals (FDP).”

Meanwhile, FDP leader Lindner appears to be determined to remain steadfast on the issue of maintaining Germany’s balanced budget law and not allowing any tax increases, even if it leaves the SPD and the Greens in the cold. SPD youth wing head Rosenthal considers this to be “irresponsible.”

“Christian Lindner has to face reality and stop living in a wonderland for the richest 1 percent of society,” says Rosenthal.

The Greens are also growing increasingly annoyed by the FDP’s blockage mentality. “This coalition wants to be a coalition of progress,” says Bundestag Vice President Göring-Eckhard. “But to make progress, you have to release the brakes. We can do better there, definitely.” A leading Social Democrat politician believes the FDP is “highly nervous” after recently losing three German state elections. The Greens, on the other hand, she dismisses as being “like a bag of fleas,” with a specialist politicians rearing their heads each day with an uncoordinated idea.

At the same time, all three parties in the government coalition are cognizant of the potential for social division the issue holds. And the degree to which it could play into the hands of populist parties.

The fractured, far-left Left Party is already lurking, awaiting its chance to attack the government from the left. With a view to the Ukraine war, party deputy head Lorenz Gösta Beutin already sees a possibility for where the money for relief should come from. “Our demand is that those profiting from the war should pay,” says Beutin. He is expecting the political situation to grow tense this autumn. “There will be fierce protests for sure,” he says. “As the left, we will work to ensure that they aren’t exploited by the right and that there is more social justice and climate protection in equal measure.”

At the right-wing populist Alternative for Germany’s (AfD) party conference in mid-June in Riesa in the eastern state of Saxony, anticipation of the coming crises was evident despite all internal differences. Guido Reil, a member of the European Parliament and former SPD member from the Ruhr region, drove his “Cold Bus” for the homeless to the front of the hall hosting the party conference in blazing heat. During the winter months, it becomes a winter bus that he drives each week to places where homeless people live. This time, he says, the bus was not only practical for transporting advertising material to Riesa – “I also got some great pictures with it,” says Reil. For him, it’s clear: “Everything is shooting up – everything is getting more and more expensive, and the social factor is the future of the AfD.”

In Riesa, Alice Weidel, the new co-chair of the party, set the tone. “A 10-percent inflation rate is nothing – we will see more,” she shouted to delegates. “What do we think is actually going to happen in this country?” Only the AfD can solve the coming problems, she said.

The party is supporting a campaign to warn of a puported blackout, a widespread power outage lasting for days. In the eastern state of Thuringia, the state party chapter of the right-wing extremist Björn Höcke, money from the party’s group in the state parliament is already being used to print related flyers. A video on Hocke’s Facebook page shows a vivid depiction of how the AfD envisions the crisis: In it, all the lights in his apartment go out.

Is there a threat of a yellow vest movement in Germany, too, like in France, where disillusioned people from both the right and left political fringes joined forces against the establishment and paralyzed the country with protests?

The good fortune of the German government could be that the Left Party and the AfD are currently in disarray. Both parties have months of political wrangling behind them. The AfD has become so unprofessional that it didn’t even manage to end its party conference as planned.

The fact that the parties are in such bad shape is probably one of the few things reassuring the government coalition in Berlin right now.

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