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This is the core of a strategic document, recently presented (11.05.) By the Federal Ministry of Finance. On Tuesday (May 24) after consultations in Brussels with EU finance ministers, Lindner called for a speedy normalization of debt. He said “we do not need conjunctival stimulation” because the situation is different from the coronavirus pandemic. Lindner presented the same argument in the strategic document of his Ministry, where he draws attention to the fact that the order books of many German companies are full.
This attitude has attracted attention. It is not yet a decision of the German government, but a position of the Federal Ministry of Finance, one of the central ministries in the German government. This ministry is headed by a conservative liberal minister, Christian Lindner, the only one with a right-wing profile between the two left-wing parties in the German governing coalition. The strategic document I spoke about still needs to be coordinated with other ministries, held by the Social Democrats and the Greens. But the fact that Lindner announced the strategic document speaks to the tendency of the German government. Such a step is not done without agreement. He does not only serve his party FDP, which, after 56 years, is running the Ministry of Finance for the first time.
Reactions to the intention of the German Minister of Finance
In a first reaction, IMF chief Kristalina Georgieva warned the German government not to return to the debt brake prematurely. In the event of a further rise in energy prices, “it would be wiser for Germany to continue to support the economy,” the IMF chief told Der Spiegel. A cut in Russian gas supplies could have significant consequences for Germany.
In Europe, Lindner’s statement has attracted attention because all countries are suffering from high inflation. The German Minister of Finance calls for swift action to return to macroeconomic stability, precisely to fight inflation. He said in Brussels that due to inflation (in Germany it is expected to be between 7 and 8 percent this year) threatens the loss of purchasing power and less investment. Price pressures must therefore be lifted, ending loose financial policy.
On the other hand, strict fiscal policy is not to the liking of states that prefer to spend money, even without having it, instead of reforms in their own countries. As a trend these are often the southern EU states.
French media e.g. they are already talking about “confirmation of the turnaround for savings” in Germany. In the current situation, the French media “hope” that the liberal Lindner, after two defeats of his party in the regional elections, will not succeed within the German government to return to savings.
The French were in fact anxiously awaiting Lindner’s acquisition of the finance ministry. He is known as a person with strong pro-European ideas, but also who is part of the “hawks” of the economy.
Since the first joint meeting in January, French Finance Minister Bruno Le Maire has stated that growth has a greater priority than stability. Lindner responded that the two meet the need for economic growth. But he demanded that “the long-term development of public finances be healthy and sustainable.” “We must return to the principle that wealth must first be created before it can be distributed,” Lindner said a few months later (March 22) in the Bundestag.
Return to previous savings policy – possible?
Despite the fears, it seems unlikely that Germany will return to the previous austerity policy before the pandemic or even before the war in Ukraine (the return to the strict financial policy of the Greek crisis is out of the question.) The composition of the current German government is different from the previous one, with the Social Democrats and the Greens wanting investment, even with debt. Until the war in Ukraine in Germany even the easing of the debt brake in the German constitution was discussed. Even for some features of the weaker economies in the EU, today it makes better sense in Germany.
So the position announced by the German Ministry of Finance, regarding the EU, should be seen more as a milestone set by Germany in the financial discussions in Europe. This attitude is a reference to the thirst for new common EU debts of some European countries.
This is because the European Commission now demands that after the common European debt for the pandemic, another common European debt be taken for the reconstruction of Ukraine. This was clearly ruled out by the German Minister of Finance. He was, however, shown in principle to be open to confiscating Russian assets in Europe as a source of income for Ukraine.
France and Italy – different arguments for new debts – also common
France and Italy have long called for a radical overhaul of the European Union’s fiscal rules and a radical overhaul of Maastricht.
The EU Stability and Growth Pact is currently out of force, due to the pandemic. Due to the consequences of the war in Ukraine, there are now demands that he stay out of power longer.
France and Italy demand that the Maastricht border be changed, allowing a budget deficit of no more than 3% of Gross Domestic Product and public debt of no more than 60% of Gross Domestic Product. President Macron demands this in the face of France’s huge public debt: 112% of France’s gross domestic product and deficit, 6.5% of GDP. Macroni has so far failed to make deep reforms in France. With 160% of GDP, in Italy public debt is even higher.
The situation in Germany is different: public debt is 69% of Gross Domestic Product. It is high but the amount is more manageable.
Earlier, France and Italy sought to reform fiscal rules to fund the return of national economies to more climate-friendly economies, with the EU’s New Green Deal. Now they are demanding that the debt limit be lifted to make investments in defense.
Germany is open to an adaptation of Maastricht fiscal rules. But it is not ready, from the current situation, to reconceptualize the entire book of EU rules, said this week the German Minister of Finance. It is also clear to Germany that the current fiscal rules are unrealistic and need to be adapted. German experts at the same time think that governments need binding rules to reduce debts.
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