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ING chief economist is no friend of the debt brake: "Better debt than a hollowed-out economy"

2023-12-05T15:56:03.945Z

Highlights: ING chief economist is no friend of the debt brake: "Better debt than a hollowed-out economy". The German government is debating the budget for 2024. Chancellor Olaf Scholz (SPD) and Economics Minister Robert Habeck (Greens) want to suspend the debt freeze again. There is great concern that the state is suffocating under its own mountain of debt. The next cabinet meeting will take place on Wednesday. If the budget is to be adopted before the turn of the year, some agreement must have been reached.



Status: 05.12.2023, 16:45 PM

By: Christoph Heuser

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Christian Linder (from left), Robert Habeck and Olaf Scholz in the plenary hall. © Michele Tantussi

The German government must save 17 billion euros. The traffic light coalition is arguing about whether this will succeed with the debt brake – or exclusively without. The chief economist of ING Bank does not shy away from debt.

The German government is debating the budget for 2024. Following the ruling of the Federal Constitutional Court, which ruled that the reallocation of Corona funds to the climate fund was unconstitutional, the traffic light coalition must save an additional 17 billion euros. At least if the debt brake is adhered to. Finance Minister Christian Lindner (FDP) wants to stick to it. Chancellor Olaf Scholz (SPD) and Economics Minister Robert Habeck (Greens) want to suspend the debt freeze again. Instead, new loans are to be taken out. There is fierce opposition to this on the part of the opposition. There is great concern that the state is suffocating under its own mountain of debt.

As a reminder, the debt brake was launched in 2009 by the then Finance Minister Peer Steinbrück (SPD). At a time when the banking crisis was shaking the economy and the euro crisis was just gaining momentum. The politicians should be chained up so that they do not hand out debt-financed election gifts. 14 years later, the situation is different. There is no short-term shock, as recently caused by the Corona pandemic, but a number of structural challenges.

Brzeski: Saving as an end in itself doesn't work

Carsten Brzeski, chief economist at ING Bank, points out that these challenges affect public goods. He cites the modernisation of the railway as an example. "These are tasks that cannot be taken over by the private sector," Brzeski clarifies, "a strong state is needed for that." And he warns explicitly: "During the euro crisis, the states in southern Europe have shown that saving as an end in itself does not work." Greece serves as a cautionary tale.

As far as opinions differ with regard to the debt freezes, all experts agree in essence: investments must be made. Abolishing the brake "is the easy solution," says Brzeski, "saving would be the painful one." If Olaf Scholz and Robert Habeck get their way, Germany's national debt will rise. Currently, this amounts to just under 65 percent of the gross domestic product, which puts the Federal Republic of Germany in the lower midfield in a European comparison. The EU average is 83 percent, and in the US it is around 123 percent.

No brakes, higher prices?

Christian Lindner fears that the renewed suspension of the debt brake will fuel inflation. Brzeski agrees with this, "if it would lead to an overheating of the economy". In other media, experts say that abandoning the debt brake would lead to a loss of prosperity and jobs. Brzeski does not share this view. It is important that the money raised is invested in a targeted manner where the economy is currently lacking. "Then it has no effect on inflation," says the economist.

It is undisputed that the government would leave the debt to the next generation. "But," says Brzeski, "if I have the choice between taking on debt or a hollowed-out economy, my answer is clear." The economist believes that Germany as a business location needs massive investments: "Otherwise, the willingness of foreign companies to invest here will also dwindle."

The Federal Government will also weigh this up. The next cabinet meeting will take place on Wednesday. If the budget for 2024 is to be adopted before the turn of the year, some agreement must have been reached by then so that the corresponding law can pass through the Bundestag. Otherwise, the traffic light is threatened with another political stalemate.

Source: merkur

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