Within democratic states, a challenge is increasingly urgent: the difficult balance to be found between deficit reduction and the investments necessary to modernize the economy, with the imperative of ecological transition. And a question arises spontaneously: can this contradictory need threaten the functioning of democracies?
Western democracies are weakened by a form of civic disaffection and fierce competition from alternative models, particularly the Russian and Chinese authoritarian models. But the political-economic debate on the right level of public spending is gaining momentum. We see this particularly, in different ways, in countries like FrancetheGermany or the UNITED STATES.
The level of debt weighs heavily in public debate. In France, Michel Barnier’s government is sounding the alarm. With a rate equal to 110% of GDP, the debt ultimately represents a danger to the country’s financial balance. Mainly because of the interest rates on this debt, which is the 2nd largest expense item! This rate is also high in the United States, where the debt is equivalent to 122% of GDP, but the United States, especially with the dollar, has a stronger position towards its creditors.
Different situation in Germany
In Germany the debt does not exceed 60% of GDP. In this country traumatized by the financial catastrophe of the Weimar Republic, which brought the Nazis to power, this “debt brake” is increasingly criticized by some parties, defended bite by others.
The former explain that we need to loosen this brake which blocks the development of the economy, the latter insist on the need to remain rigorous. These tensions led to the dissolution of Chancellor Scholz’s governing coalition and, consequently, to new elections next February.
Read also Political crisis in Germany: Scholz dismisses the Finance Minister, the coalition falls apart
The debate on debt is concomitant with that on the budget deficit
The debt is partly used to plug budget deficits that continue to widen in France and the United States, two countries that have budget deficits of 6%. In France the government is desperately trying to save 60 billion, with Homeric debates in the National Assembly between spending cuts and new taxes.
In the United States, Donald Trump loaded Elon Musk cut public spending by a third: no less than 2 trillion dollars.
in Germany, the debate is almost the opposite. As with the debt, more and more voices are calling for an exit from the maximum 0.35% of GDP rule for the deficit, which prevents spending on future investments and the country’s security.
In these three countries, it is more necessary than ever to arbitrate between current spending (to fill the deficit and finance social protection) and investment spending for the modernization of the economy and the ecological transition – which can justify the use of borrowing. And these debates, which may seem technical, are actually extremely political. Because it is also on this terrain that the future of democratic systems will be played out.
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What are the main economic challenges facing democracies in balancing deficit reduction and ecological investments?
Interview Between Time.news Editor and Economic Expert
Editor (E): Welcome to Time.news! Today, we have the pleasure of engaging with Dr. Sarah Elman, an esteemed economist specializing in public finance and democratic governance. Dr. Elman, thank you for joining us.
Dr. Elman (D): Thank you for having me! It’s a pleasure to be here.
E: To start, let’s talk about the pressing challenge facing many democratic states today—the balance between deficit reduction and the necessary investments for economic modernization and ecological transition. How do you view this dilemma?
D: It’s indeed a critical issue. On one hand, reducing deficits is essential for long-term fiscal sustainability and economic stability. On the other hand, we cannot ignore the urgent need for investments in modernization and the transition to a greener economy. These are not just economies that require building but also infrastructures essential for future resilience.
E: You mentioned ecological transition, which seems to be at odds with deficit reduction. Can pursuing a robust ecological agenda threaten the functioning of democracies, as the article suggests?
D: That’s an interesting point. There is a risk. If citizens perceive that their governments are overextending debt without delivering on promised investments, we might face increased civic disaffection—a disengagement from democratic processes. Alternative models, particularly those of authoritarian regimes like Russia and China, often appeal to people disenchanted with democratic inefficiencies. It creates a precarious situation.
E: You’ve referenced civic disaffection, which is particularly relevant in Western democracies. Could you elaborate on how this manifests in countries like France, Germany, and the United States?
D: Absolutely. In France, we see rising unrest concerning high public debt, which is currently at 110% of GDP. Citizens are worried that interest payments are crowding out critical investments. In the U.S., with debt levels around 122% of GDP, there’s a similar anxiety, although the dollar’s global standing offers some leeway. Meanwhile, Germany, with its “debt brake” keeping the debt below 60% of GDP, is under debate—some argue for more spending to stimulate the economy while others caution against inflationary risks. The political tensions this creates are palpable, leading to events like the dissolution of Chancellor Scholz’s coalition.
E: So, is it fair to say that each nation has its unique challenges based on its economic context?
D: Certainly. The historical and cultural context shapes how each nation approaches these issues. Germany’s caution stems from its past with hyperinflation, while the U.S. has a different global position influencing its handling of debt. Each country must navigate its path carefully, balancing fiscal prudence with the need for growth and sustainability.
E: Speaking of navigating difficult paths, what role do you think policymakers can play in ensuring that both the ecological transition and deficit reduction can coexist?
D: Policymakers need to adopt a long-term perspective. This might involve rethinking tax structures, pursuing innovative funding mechanisms like green bonds, or even investing in projects that generate economic returns, such as renewable energy initiatives. Importantly, they must engage in transparent dialogue with the public to rebuild trust and create a sense of shared purpose.
E: Fascinating insights, Dr. Elman. Before we wrap up, what advice would you offer citizens who are concerned about the balance of public spending and debt in their democracies?
D: I’d encourage citizens to stay informed and engaged. Engage in local and national dialogues about budgetary choices and hold their leaders accountable. Understanding the trade-offs and advocating for responsible investments can strengthen democracy by ensuring that voices are heard and considered in decision-making processes.
E: Thank you, Dr. Elman, for your valuable insights today. The balance between deficit reduction and necessary investments is indeed a complex topic, but as you’ve eloquently articulated, it is vital for the health of our democracies.
D: Thank you for the conversation! It’s always good to discuss these critical issues.
E: And thank you to our audience for tuning in. Until next time, stay informed!