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Angela Merkel once described the temptation to take on debt as a “sweet poison.” For the Greens of the opposition, the opposite is true: it is a potential cure for Germany’s ills.
The Greens, who voted about 20 percent with three months to go before the federal election, said that to modernize Germany and make it carbon-neutral in 20 years, public investment would have to increase by $ 50 billion. euros a year over the next decade.
To achieve this, they want to review the “Debt brake”, the tight restriction on new loans inscribed in the German constitution in 2009 during the financial crisis.
“The pandemic really exposed all the deficits we have in this country, especially in digitalization and public administration,” said Lisa Paus, a spokeswoman for Green’s financial policy. “It simply came to our notice then. And that’s why after the crown we can’t go back to the old rules we had before. “
Even before the pandemic, the Germans were worrying about the state of its infrastructure. State development bank KfW estimates the country’s investment gap (the money municipalities urgently need to fix ruined bridges, schools and swimming pools) to 149 billion euros.
Then the coronavirus crisis launched Germany’s deficiencies even sharper relief. People were surprised to find that their public health offices were still faxed. They were furious at the slow pace of vaccines against Covid-19 and the bureaucracy involved in getting an appointment.
The Greens have what they say is a simple solution to the investment gap: they want to restrict the brake on Germany’s debt to consumer spending when the government acquires goods and services for current use, but exempts from the regulates investment spending. Here, according to the party, a new indebtedness should be authorized for expenses that create new public assets.
The idea is that years of insufficient investment have led to a different type of debt: “debts that are not on the books, but that endanger our prosperity,” as the Greens manifesto says. Checking the can along the way, especially when it comes to weather, is said to only lead to much higher costs and more debt in the future.
Polls show that a large proportion of voters like the idea of higher state investment. It is also supported by some of the leading German economists. “It’s not like they come up with this new idea,” said Marcel Fratzscher, head of the German Institute for Economic Research in Berlin. “There is a broad consensus that an investment boost like this is needed.”
Others are skeptical. “The Greens’ plans are based on the idea that interest rates will persist, ”said Andreas Meyer-Schwickerath, head of the OMFIF economic think tank in Germany. “But what happens if they increase by 1-2%? You end up in a debt trap. ”
The rule the Greens want to reform, which limits new debt to 0.35% of gross domestic product, has been on hold for months. Finance Minister Olaf Scholz suspended it as soon as the coronavirus crisis began, a measure that allowed it to increase the record of 370 billion euros of pandemic-related debt since 2020. Scholz recently announced who will lend an additional 100 billion euros in 2022.
Scholz, the center-left candidate for chancellor of the center-left Social Democrats, now wants to restore the debt brake in 2023, not 2022 as originally planned, but has rejected calls end it.
In an interview with the Financial Times last month, he said the Greens were disdainful because they knew there was no parliamentary majority to amend the constitution. Armin Laschet, the center-right CDU chancellor candidate, is he also opposes any change.
Paus, a trained economist, acknowledged that it will be a challenge to put aside the debt brake of the constitution. “If that doesn’t work,” he said, “we should consider other options, maybe organize investments through KfW. [or] create a federal investment fund, support it with equity and let it increase debt. “
But this can only happen if EU tax rules are relaxed. This is also an ecological goal. “If the rules are too strict and make no economic sense and prevent us from doing what is politically necessary, they must be changed,” green co-leader Robert Habeck wrote in January.
The fiscal rules set out in the EU’s Stability and Growth Pact relaxed in any case during the pandemic. But EU conservatives insist that the basic framework of the CAP, which limits debt to 60% of GDP and budget deficits to 3%, it cannot be changed.
Paus said that at a time when the average debt-to-GDP ratio in Europe is 90-100%, there is a clear need for reforms. “It makes no sense to be dogmatic about it and stay with 3 and 60%,” he said.
The reforming zeal of the Greens does not stop here. They also have big plans for the € 750 billion EU coronavirus recovery fund, set up last year to help EU countries cope with the economic consequences of the pandemic.
The fund is controversial in Germany. Angela Merkel could only sell the idea that the EU would increase the common debt with her fellow Christian Democrats by assuring them that it was timely. By contrast, the Greens want to turn the fund into a “permanent instrument of investment and stabilization” capable of investing in “important future-oriented sectors” of the economy.
It has not yet been decided whether they will be able to implement any of their ideas. If the election produces a Christian Democrat-green coalition, as many expect, conservative resistance to its reform plans will be fierce.
But Paus said the voting public is on his side and support for more generous investments is growing. “The people of this country want a state that works,” he said. “And they are frankly ashamed of the distance Germany has.”
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