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Traffic light treaty: When the new government misunderstands inflation


The big consensus paper of the traffic light partners has a lot of potential for future disputes - for example about what solid public finances have to do with current price surges.

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Traffic light partner Annalena Baerbock, Robert Habeck, Olaf Scholz, Christian Lindner: Remarkable compromise neuroticism

Photo: Michael Kappeler / dpa

Have you ever tried to agree on a future program for the coming months with your partner, Aunt Erna, Lisa, colleague Bolle and the Netflix group?

I guess you wouldn't even try.

And that already gives an idea of ​​what remarkable compromise neuroticism must be behind the now red-yellow-green coalition agreement over 177 pages.

Like the merger of a Swabian housewife and Big Spender

Especially when the economists of almost all possible schools of thought say about the actually highly controversial financial policy that it is quite right.

Then either a miracle happened and the ultimate truth emerged during an intensive search.

Or something is wrong.

The not quite so glorious interpretation is supported by the fact that, on closer inspection, sentences in the text that seem to come from different worlds of thought often alternate. It says how important it is to invest a lot now (tip: the part comes from the SPD and the Greens), followed by warnings that the budget situation is already "extremely demanding" - and that taxpayers' money must be used sparingly and everything actually belong on the test bench (which sounds a little bit like the old FDP). That doesn't have to contradict each other, it just sounds like the fusion of a Swabian housewife and big spender.

What that means in practice will only become apparent when things get serious.

For example, when the economy slows down sharply as is foreseeable, the finance minister may already be missing the income that has been budgeted for so far in 2022 - and then the question will be what is more important now: the big investment agenda - or save.


The fact that behind the appearance there could not be quite as much unity and ultimate truth with the level of knowledge in 2021 can also be guessed by a sentence on the fiscal policy line that the future Federal Minister of Finance said when the contract was presented.

It is important to ensure solid finances, says Christian Lindner, because, beware, the people in the country are currently worried about inflation.

To say something like that in Germany is still common - and is usually accompanied by a reference to the dire hyperinflation almost a hundred years ago, when high national debts actually contributed to rapid inflation.

On closer inspection, however, that is rather absurd as a comparison - and anything but the state of economic knowledge.

Possibly even extremely negligent.

more on the subject

Financial policy of the traffic light coalition: Lindner's small arms by David Böcking

Back to basics: If national debts contribute to higher prices in the economy at all, this would have to happen mainly because of higher government spending or falling taxes suddenly so much money is in circulation and also being spent that the economy can no longer keep up, the economy overheated and many providers then raise prices - which in turn leads to rising wages and rising prices again. Bam.

It has just been out of the question for years.

It is true that the national debt to support demand rose sharply in the 2020/21 corona crisis.

This was only intended to compensate for the fact that there was too little to be done in the economy.

Capacity utilization in German industry is currently below 85 percent - anything but full.

A curiosity on the side: Part of the currently higher inflation rates was due to the fact that the VAT was raised again at the beginning of 2021 - which reduced the national debt and did not increase it.

Nor does it fit into the inflation-through-debt scheme.

Driven energy prices and bottlenecks - government debt that is not too high or an overheated economy

If there has been monetary devaluation in the past few months, it was not due to too much economic activity or national debt, but to a mix of consequences of the corona crisis, which include speculative energy prices on the world markets, as well as bottlenecks in the supply chains, which in turn have long-term consequences the lockdowns have to do. What is more expensive is, above all, energy: recently in Germany alone by four percent compared to the previous month. In contrast, the prices for industrial goods without energy barely rose any more. That doesn't make energy cheaper, but it does give hope: sooner or later, this kind of speculation will turn around. And, above all, it makes a difference politically. If it's the international energy markets, it doesn't help to cut spending in Germany now - or to raise interest rates. That doesn't solve the causesBut it also dampens the economy and ultimately costs jobs and investments.

The same applies to international delivery problems.

In principle, these also mean that the economy does not keep up.

But here, too, it doesn't help if the state cuts spending in Germany - or the central bank increases interest rates.

That doesn't solve delivery bottlenecks - and would be a bit like suicide for fear of death.

more on the subject

Analysis of the coalition agreement: who had to give in and where - and what's next

If anything, there is a possible link between sovereign debt and higher inflation in the US today.

The government began to spend a lot more - at a time when the economy was again much further ahead than in Europe, for example.

Even here, only a large part of the inflation has so far also come from energy prices.

If inflation per se came from high national debt, there should have been hyperinflation in recent years - in almost all countries worth mentioning, debt has risen sharply since the financial and euro crisis. In the OECD countries, the national debt ratio increased from 80 to 130 percent of economic output between 2008 and 2020. And? Inflation remained historically low at almost all of the time, at less than two percent. There is even a lot to suggest that, in the absence of sales and so much economic lethargy, there is a risk of a dangerous dynamic of falling prices - that is, deflation, not inflation.

A passage from the treaty in which the traffic light writers philosophize that the European Central Bank can best ensure price stability if the governments "meet their responsibilities" confirms that the coalition partners still need clarification on the matter.

If that means that you should spend less, then

good luck


For the reasons mentioned above, there are a lot of experts around the world who, in view of the aftermath of the crises, say exactly the opposite: Governments must finally ensure that the economy gains more dynamism - even if it is through loan-financed investments and relief.

Then the central bank could finally reduce its emergency aid.

more on the subject

Documentation: Read the full text of the coalition agreement here

That would be roughly the opposite of what the strange maxims on national debt and inflation postulate from traffic light circles.

If the modern reading is correct, it could prove even more negligent to convince people that more government spending (and debt) devalues ​​their money.

Nonsense alarm.

That drives people crazy without changing the causes of the (temporarily) higher inflation.

Worse still: In case of doubt, to forego important investments, for example in saving the climate, would be a disaster.

There is no doubt that what has brought such different traffic light coalitioners together in the past few weeks is one thing.

And certainly good for the country in many ways.

For other things, the bill threatens to be blown out soon.

And that this applies to the basic understanding of national debt and inflation is not a good sign.

Source: spiegel

All business articles on 2021-11-26

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News/Politics 2021-11-26T04:47:57.870Z

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