The explorations of a possible traffic light coalition are entering the critical phase. On the one hand, there is great political pressure to get the alliance on the chain. On the other hand, the rifts are deep – especially in financial policy. During the election campaign, FDP leader Christian Lindner always spoke of the lack of creativity for a traffic light coalition. Green boss Robert Habeck, on the other hand, is now emphasizing that creativity is necessary. It is foreseeable that Lindner probably has the greatest chances of assuming the office of finance minister and that this will also be claimed in the explorations. The compromise lines in terms of fiscal policy are a challenge. The ideological rifts become particularly clear when it comes to the debt brake.
Well into the economic mainstream it is clear that the debt brake is on the operating table. While some continue to defend it staunchly for purely ideological reasons, even ordoliberal mainstream economists such as Clemens Fuest from the Ifo Institute are looking for minimally invasive surgical interventions.
The most popular intervention from the left is the so-called golden rule, also known as the investment rule. However, this would have to be anchored in the Basic Law by a two-thirds majority of members of the Bundestag. As a rule, investments would be excluded from the debt brake, so that unlimited technical investments would be possible. Since the investments are limited by other capacities such as planning speed and economic utilization, the Institute for Macroeconomics and Business Cycle Research (IMK) comes to a margin for additional investments amounting to 48 billion euros. The golden rule was in the election manifesto of the Greens. Habeck already said in an interview that it could not be done with the FDP, that other ways had to be found.
There are alternatives
Left-wing SPD circles are toying with a simple legal reform, the so-called economic component of the debt brake. This adjusts the structural deficit and is therefore decisive for the calculation of the permissible new borrowing. It is made up of the budget semielasticity and the production potential. The calculation of the latter can easily be changed by law so that the debt brake allows a new margin of 24 billion euros. But that too is likely to be too much for the FDP. Volker Wissing, the FDP’s co-negotiator, recently said that the FDP would not be able to loosen the debt brake. The budgetary spokesman for the parliamentary group, Otto Fricke, described this as the red line.
Other variants are also being discussed in academia, such as the temporary suspension of the debt brake (56 billion euros annual short-term leeway), the cancellation of corona debt repayment (1.7 billion euros) or the cyclical adjustment of repayment obligations (1.1 billion euros). . The first two ideas would require an amendment to the Basic Law and are therefore off the exploratory table; the third idea probably does not play a major role in political discourse due to its small size.
“Avoid” the debt brake
But even without reforming the debt brake, there is room for maneuver. Often this leeway is used as a “bypass”, nothing can be bypassed that is not regulated by the debt brake. Often progressives fall for the framing of the conservatives here. But there are suggestions from both sides.
The economists Clemens Fuest (Ifo) and Marcel Fratzscher (DIW) both argue for a reserve solution. With the suspension of the debt brake in the coming year, additional debt could be taken out and used to build a reserve. This reserve could then be spent in the traffic light legislature. According to Fuest, it should be earmarked so that it cannot be used for the (unjustifiably) demonized consumer spending (hiring teachers, paying child benefits or planning climate protection measures). In addition to traditional investments, this could also be used to finance subsidies for private investments. Fuest describes as a positive aspect that such a reserve would not lead to a “dam break” in national debt. The green chief housekeeper in the Bundestag, Anja Hajduk, criticized the Spiegel the uniqueness and doubts whether enough money can really be made available. Benevolent signals are coming from the FDP – presumably because of the low volume and the uniqueness.
Jens Südekum, on the other hand, pleads in the World on sunday for a state investment fund or a state future fund. This would have the character of a public-public partnership and would be a kind of middleman. Depending on the design, it would implement investment opportunities more or less politically independent with municipal companies, for example in local public transport or in residential construction. The fund would finance itself to a small extent from federal funds and increase the volume with borrowed funds from loans and bonds. While the Greens are in favor of such a fund, the SPD chancellor candidate Olaf Scholz has criticized a similar construct for the climate bond because of the above-average interest rates for investors. The FDP, on the other hand, is likely to be critical of such an investment fund, as this would be an institutionalization of the shadow budget.
For example the train
The Institute for Macroeconomics and Business Cycle Research, on the other hand, calls for public investment companies. An example is the Deutsche Bahn or the Berlin school building campaign, where legally independent companies that are state-owned take out loans and spend them on a purpose-oriented basis. The investment companies can enable investments of between 5.7 and 22 billion euros, depending on their annual scope. The decisive factor here is whether EU rules are relaxed. Clemens Fuest criticizes the fact that the investment outsourcing increases the consumer spending in the federal budget, which he demonizes. Although the FDP advocates exactly such a construct in the case of share pensions, its representatives consider it to be accounting trickery in this case and reject it. The SPD is also loud about the proposal Spiegel critical of it, which is surprising since many economists from party circles are in favor of this.
Public-private partnerships are also a way of circumventing the debt brake. For example, private companies use loans to implement infrastructure projects such as the construction of a motorway. In the negotiations between the federal government and the company, remuneration payments are agreed upon, from which the company repays the loan. Investment projects are outsourced to private companies and the state’s room for maneuver is expanded, while the total costs increase. In doing so, however, the state’s influence and possibly also price control will decrease. Such public-private partnerships should be entirely in the spirit of the FDP, but can only replace certain state investments. A widespread application should not be in the interests of the SPD and the Greens.
All of these measures are compliant with the debt brake. Perhaps the reserve solution is the lowest common denominator, as government spending is not decoupled from the federal budget.
What Would a Progressive Government Do?
The most far-reaching measure would be the crisis-related suspension of the debt brake due to the climate crisis. Just as with the suspension in the Corona crisis, this is possible through the so-called Chancellor majority, i.e. the absolute majority of all MPs. Whether the reasoning will stand up in court is another question. In any case, this risk with the FDP is completely ruled out.
A progressive government could combine the measures and test the legally sensitive ones in order to gain as much leeway as possible in adhering to past repayment agreements. One would first try to suspend the debt brake for as long as possible (first because of the corona and then because of the climate crisis), then one would modify the debt brake with cyclical components and the golden rule and then create shadow budgets. When it comes to public-private partnerships, a progressive government is likely to hold back.
In addition, budgetary problems resulting from rules such as the debt brake or the Maastricht criteria of the EU would become less relevant. A fairer tax policy by a progressive government would increase tax revenues. However, in order to be able to act as far as possible, all possible rules must be modified.
It remains to be hoped for Germany that Christian Lindner does not assert himself in financial policy or even as finance minister. In the near future there will certainly be voices again in the FDP calling for a balanced budget – an even more restrictive orientation than the debt brake. In any case, the return to the debt brake threatens the repayment of past national debts. To do this, the state has to extract more money from the economy through taxes than it puts in through spending. If the traffic light does not find the billions it needs to fight the climate crisis and ecologically transform the economy, Germany will continue to miss its climate targets. We play against time!
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