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Thursday, May 19, 2022

Lindner’s credibility depends on a promise

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Some politicians see crises as opportunities. But as finance minister, Christian Lindner is a crisis manager who hopes normalcy will return soon. The crisis prevails in the here and now and determines the budget policy of the ruling coalition. The leader of the FDP does not know when normalcy will reign again. Until then, he has to do what he really doesn’t like.

The government is taking on more and more new debt or plans to do so in the near future. Lindner is counting on the fact that from 2023 crisis politics will no longer be necessary and that he will be able to implement his announcement that the debt brake will be applied again.

In the meantime, your credibility depends on keeping this promise. In Tuesday’s budget debate in the Bundestag, Lindner summed up his condition between hope and fear in the following sentence: “Public finances do not go bankrupt in the crisis, but they do if a return to normality is not achieved.” . it boils down to getting new loans properly, to tame the twin crises, the pandemic, and the Ukraine, so that the brake pedal can be properly applied next year.

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What Groko has been the ever-growing surplus reserve since 2014, the traffic light is the credit cushion created in 2021. Lindner is now dissolving the reserve of at least 48 billion euros within three years, because otherwise it will not could demonstrate compliance with the debt brake in financial planning. It will use more than half, that is, 28 billion euros, in the 2023 budget. And it must make the most of the margin for new loans that the debt brake also gives in normal times. From 2023 to 2026, a good €40 billion in new loans are in the financial planning. Lindner will not become a master of the black zero.

Credit buffer instead of reserve

The credit buffer has so far consisted of two parts. €60 billion of unused credit authorizations in the pandemic year 2021 were already transferred to the energy and climate fund through a supplementary budget in January. The €100 billion debt-financed special fund is now being used to better equip the Bundeswehr. Lindner has earmarked nearly another €100 billion for pandemic-related measures this year; Whether it is too much or too little and how creatively the coalition will tackle it remains to be seen.

Now another pot of debt is added. Lindner has announced a supplemental budget for the 2022 budget which, according to SPD budget politician Dennis Rohde, “hopefully will be available in a few weeks”. The volume is not yet known, but it could be at least 25,000 million euros, according to what can be heard from the coalition. This is intended to finance costs resulting directly from the Ukraine war; in addition to mitigating rising energy costs through the two aid packages (the second is still controversial in the coalition), the money is mainly needed to accommodate refugees. Their number grows with each day of war.

How big will the supplemental budget be?

What the federal government (and thus Lindner’s supplemental budget) will face also depends on cost-sharing discussions with the states. The crux of the matter is whether refugee costs are funded through basic security or the Asylum Seeker Benefits Act. Only the federal government pays for basic security, which also includes integration measures that go beyond pure language courses. In any case, the complementary budget will be financed through additional loans. To do this, the coalition wants to reuse the emergency clause of the debt brake. Until now it was the virus and its effects, now it is war and its consequences.

The leader of the Union parliamentary group, Alexander Dobrindt, accused Lindner of having presented an incomplete budget for 2022 after an unconstitutional supplementary budget (the Union believes that the 60,000 million will be misused for climate investments). Dobrindt described the special fund, for the implementation of which the Union needs the semaphore through the Basic Law, as a “special debt”. The CDU and CSU would be happy to label the FDP leader a debtor, but since they cannot and do not want to refuse the best weaponry in the army, they are holding back.

“The Fastest Way”

But Lindner is planning ahead. The exceptions would apply in exceptional moments that he wishes to put behind him “as quickly as possible”. If the normality of the debt brake is applied again from 2023, Lindner wants to score points as a guarantor of budget stability until the next elections. As a “sign of fiscal stability”, he dared to take a broad view in the Bundestag debate. In the second half of the decade, Germany’s debt level will fall back to below 60 percent of gross domestic product, ie the limit the EU sets for its member states in normal times. However, the debt is currently growing, towards 80 percent.

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