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Why Vice Chancellor Olaf Scholz loves black zero so much

2019-10-17T13:26:31.521Z


At the meeting of the International Monetary Fund there will be much criticism of Olaf Scholz and his policy of black zero. But the Minister of Finance follows a very specific calculation.



When Olaf Scholz flies to the International Monetary Fund (IMF) meeting in Washington today, he will hear little new news. Everyone has already spoken: the French Finance Minister and the Bulgarian head of the IMF, the heads of the European Central Bank and virtually every Anglo-Saxon economist brave enough to pronounce the word "black zero". They all want Germany to finally stop saving, spend more and do something about the economic downturn, which has since been upgraded by IMF economists to a "synchronous downturn".

And as it has now become routine, the German Finance Minister will listen to the litany patiently and in his conversations with counterparts from around the world friendly smile holding the counter speech: Germany is already investing at record levels, he will say that the construction industry is busy and in many Companies are still complaining more often about the shortage of skilled workers than about a decline in orders. The state simply can not spend more money. Same procedure as last year? Same procedure as every year.

Of course, Scholz knows that the government could very well stimulate the economy if it wanted to - for example through a tax cut. And he also knows the warnings of economists that the best demand impulse fizzles when he comes too late. But the Minister of Finance is these days not just as chief economist on the way, but as a candidate for the SPD presidency. On top of that, he wants to hold the party in the grand coalition and prove that it is still capable of governing and chancellor. And so it happens that Scholz is following a very different calculation these days than his critics in Paris, Brussels or Washington are right.

The rules of debt making

debt ceiling

"The budgets of federal and state governments are in principle to be compensated without income from loans", says Article 109 of the Basic Law. In the future, the federal states will no longer be allowed to make indebtedness independent of the economic cycle, while the federal government will limit it to 0.35 percent of the gross domestic product.

Valid since

For the federal government since 2016, for the states from 2020 onwards.

liability

The debt brake has constitutional status. In economic crises or emergencies such as a natural disaster, the debt may be higher. But there must be a binding plan for the repayment of the loans.

Debt scope for Germany (measured by GDP 2018)

For the federal government about 12 billion euros.

implementation

So far, the federal government has kept the debt brake.

Maastricht criteria

The convergence criteria of the Maastricht Treaty must be met by countries wishing to adopt the euro. According to this, the new debt (deficit) may amount to a maximum of three percent and the total debt to a maximum of 60 percent of the gross domestic product. Thanks to the Stability and Growth Pact (SGP), these guidelines must be adhered to even after joining the euro.

Valid since

1993 (Maastricht Treaty) and 1999 (SWP).

liability

Although the Maastricht criteria are enshrined in EU law, they have often been violated. The EU Commission has therefore launched numerous so-called deficit procedures, but without financial consequences.

Debt scope for Germany (measured by GDP 2018)

Nearly 102 billion new borrowing and a good 2 trillion total debt.

implementation

Germany violated early against both rules. In recent years, however, Germany has always complied with the deficit burden. The total debt falls in 2019 for the first time in 17 years again below 60 percent.

fiscal Pact

The Fiscal Compact was adopted as a tightening of the Stability and Growth Pact, which was unable to prevent the European debt crisis. Instead of only meeting the three-percent limit of the Maastricht criteria, the signatories of the fiscal compact should aim for balanced budgets in the medium term. The indebtedness of the general government, which is independent of the economic situation, may amount to a maximum of 0.5 percent of the gross domestic product. If the total debt level is well below 60 percent, this limit increases to 1.0 percent.

Valid since

2013

liability

The signatory states must anchor their goals in the constitution, as Germany has done with the debt brake. The Fiscal Compact provides for the first time the possibility of financial sanctions for non-compliance. So far, this possibility has not been used.

Debt scope for Germany (measured by GDP 2018)

Nearly 17 billion, as long as the total debt is over 60 percent.

implementation

So far Germany has complied with the debt rules of the Fiscal Compact.

Black zero

If government revenue and expenditure are the same, the bottom line is the proverbial black zero. New debts are not necessary in this case. We also speak of a balanced budget.

Valid since

-

liability

The black zero is not a legal requirement. As a common goal of the Union and the SPD, however, it finds itself in the current coalition agreement.

Debt scope for Germany (measured by GDP 2018)

none

implementation

For the first time in 45 years, the black zero was reached in the federal government in 2014 and has been held ever since.

The fact that the state should operate in times of lowest interest rates on pumping, is valid on the stock exchanges and possibly also still in the SPD official layer as wise policy, not however at the party base. The ticks more like the majority of the population, which, according to the surveys, a lot of balanced budgets and little of public debt, according to the motto: rather spend nothing, than wrong.

Scholz also wants to continue governing, but the rule is: Who wants to maintain a political relationship is well advised not to deprive the partner of the most important concern. For the CDU black zero is almost the last conservative brand article that they can still exhibit. At the next congress, the principle is therefore to be reaffirmed. If the SPD were to break loose on this issue, they would not need to set up the planned balance of the Grand Coalition, they could go straight into the opposition.

In addition, an end to the black zero would bring the Social Democrats and tactical disadvantages. If the coalition would give up its budgetary target, the comrades could barely barred against the CDU demand for tax relief. Scholz, however, is proud to have abolished the solos only for the lower 90 percent of taxpayers, the top earners must continue to pay. He is being portrayed as a true Social Democrat by the Finance Minister, who believes that he has made a hit for the SPD presidency by proposing a tax cut against the rich.

We always have to stay visible as #SPD! We can not win successes so that in the end we talk about other things. At #Soli this has been done well: abolished for over 90%, but the richest of our society, who can shoulder that, have to pay him more.

- Olaf Scholz (@OlafScholz) October 12, 2019

In addition, many Germans appreciate it when the Minister of Finance opposes the pressure of the international financial elite and fights for solid budgets. Can not enough uncertainty be achieved if the European Central Bank devalues ​​the savings with its negative interest? Does the state have to cut billions without thinking of tomorrow?

That Scholz is apparently willing to give in to such fears and concerns, some of his counterparts already believe in populism. If Germany does not resolutely oppose a downturn, they fear, Germany's industrial slowdown could drag the entire eurozone into the abyss. But Scholz sees himself on the safe side. If the IMF economists are right and the world economy picks up again next year, he is right with his restraint. And should the economy break in unexpectedly, there is still time enough to act.

Assuming of course, the second part of the Scholz bet goes up - and carries him to the top of the SPD.

Source: spiegel

All business articles on 2019-10-17

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