It was something like the first official act of the new Federal Finance Minister and FDP boss Christian Lindner. Shortly after he was sworn in, he enacted a law for a supplementary budget, which as an opposition politician he would have castigated as unsound. He wants to transfer unused Corona loans from 2021 so that, firstly, they do not expire and, secondly, can serve as a reserve for other tasks.
It’s about 60 billion euros. Lindner wants to outsource the sum to the energy and climate fund, a federal fund. The money would be needed to “help transform one of the largest industrial nations towards climate neutrality,” said the finance minister in the Bundestag, referring once again to the declared aim of the new government of the SPD, Greens and FDP.
Is the supplementary budget unconstitutional?
Lindner’s move is not well received everywhere. It is “fundamentally problematic that reserves are created by means of debts in order to finance projects in the next few years,” criticized the taxpayers’ association. The CDU and CSU, who have been in the opposition since the federal election, go one step further. “I can tell you very clearly: I consider this supplementary budget to be unconstitutional,” complained Christian Haase, the budgetary spokesman for the CDU / CSU parliamentary group in the Bundestag.
The budgetary spokesman for the Union parliamentary group, Christian Haase, made serious accusations against the Federal Finance Minister
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The reallocation of the funds is nothing more than a circumvention of the debt rules anchored in the Basic Law. “I consider this supplementary budget to be the beginning of the end of the debt brake. And that will be linked to your name.”
Coalition with consequences
While Haase was upset, Lindner deliberately delved into his files on the government bench. The FDP politician is in an uncomfortable situation for him. For years he has been pushing for Germany to comply with the debt brake anchored in the Basic Law as soon as possible. The constitution stipulates that the state – with the exception of a small credit line – can only spend as much money as it earns.
Because of the pandemic, which is an emergency, the debt brake has been suspended. In 2023, Lindner assures, it will be adhered to again. But is that realistic? As the new Federal Minister of Finance, he is subject to the constraints of a government coalition that will need an enormous amount of money in the coming years to cope with the consequences of the corona pandemic and to respond to climate change. The German Trade Union Confederation recently calculated that 50 billion euros will be needed every year.
There is no leeway in the household
Lindner has to find the money, but that will be difficult. The federal budget is inflexible. Every second euro is firmly planned for social benefits, the lion’s share are pension payments. Cuts are not up for debate; the aging society is even increasing demand overall. The consequences of the corona pandemic are also driving up social spending. In the coalition negotiations, the FDP ensured that taxes were not increased. So the only option left is new loans.
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Since the beginning of the pandemic, Germany has continued to borrow considerably. While the federal budgets for the years 2014 to 2019 were balanced, record loans had to be taken out in 2020 and 2021. The mountain of debt of the federal government has grown in the two years by around 400 billion euros to significantly more than 1.4 trillion euros. If you add up the debts of the federal states and the municipalities, the total is just under 2.4 trillion euros.
The pandemic-related debts are supposed to be repaid. So far it was agreed that within 20 years. But that is already wasted. In the coalition agreement it was agreed that the debt repayment would be extended by a further 16 years to 36 years.
New budget, new debts
In 2022, the federal government will definitely continue to be in debt. Under the old government, the then Federal Finance Minister Olaf Scholz (SPD), who is now Federal Chancellor, estimated almost 100 billion euros in new debt for 2022. However, only within the framework of a draft budget that never became law. This is so common in years when the Bundestag is newly elected. After the election, it is up to the new government to revise the draft.
Olaf Scholz (right) is now Federal Chancellor, Christian Lindner his successor as Finance Minister
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This is happening now. The newly occupied ministries have to register their expenditure requests by February 25th. On March 9, the draft is to be approved in the cabinet, then it is parliament’s turn. Lindner wants to leave the new debt for 2022 at the planned 100 billion euros. However, the economic forecasts are inconsistent, it will largely depend on the further course of the pandemic whether the economy is running and taxes are flowing.
Even more economic aid needed
Lindner therefore wants to limit expenses wherever possible. In a letter that the Federal Finance Minister sent shortly before Christmas, he urged his cabinet colleagues to renounce. They should “use savings potential” and say goodbye to “unrealistic commitments”: “A political announcement of non-counterfunded measures in advance of the further budget negotiations is not expedient, because it arouses expectations in the public that may prove to be unattainable. “
What is certain is that troubled companies will continue to receive financial support in 2022. According to the Federal Ministry of Finance, almost 58 billion euros have so far been paid out to companies in the form of non-repayable grants (as of November 2021). The repayable aid, including loans, guarantees and state investments, amount to almost 70 billion euros.
Companies will actually have to start repaying in 2022 after repayment was suspended in the first year. But how is that supposed to work if the pandemic will affect business well into the coming year? It is to be expected that many repayments will not be made, and there will be new applications. Also on short-time work and unemployment benefits. The first sectors such as gastronomy, event management and tourism have already announced layoffs.
Boost the economy
However, coping with the pandemic is only one area that the new government has to work on financially. The conversion of the economy towards climate neutrality should start as soon as possible. “Due to the uncertainties and restrictions of the Corona crisis, many investments in modernizing the economy have failed,” says Christian Lindner.
Federal Finance Minister Christian Lindner in the Bundestag
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With the 60 billion euros from the supplementary budget, he wants to ignite a booster for the national economy. “It is of fundamental importance to organize a catch-up process now. We must not lose time in the transformation of the economy and society as a result of the pandemic.” Lindner hopes that this will result in more economic growth and thus more tax revenue.
That is also the line of the Federal Chancellor. “New financial leeway arises through growth and growth is the result of smart investments,” said Olaf Scholz recently in the Bundestag. “That is why it was and is the right thing not to save against the crisis, but also to make broad aid and high investments possible so that we can grow out of the crisis.”
No austerity course – not even in Europe?
It will also be interesting to see how the new Federal Finance Minister will position himself in European financial policy. Before the federal election, the FDP politician Lindner was seen as a feared opponent, especially in the southern European countries, because he wanted to campaign for a tough consolidation course. Now its national supplementary budget of over 60 billion euros has raised completely different expectations.
In Brussels, the expectations of the new German government are high
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This became clear on Lindner’s inaugural visit to Paris, when his French colleague Bruno Le Maire expressly congratulated him on this move. France and some southern European EU countries also agreed that Chancellor Olaf Scholz and his Vice Chancellor Robert Habeck (Greens) both warned against austerity measures within the EU.
Germany is also tearing the EU debt limit
So far, the European Stability Pact has only allowed the member states to borrow 60 percent of their gross domestic product, i.e. the sum of all economic benefits. A mark that is repeatedly exceeded – in some cases significantly – in a number of countries. In 2019, Germany was below 60 percent for the first time since 2002. In 2020 it was already more than 68 percent. Trend: increasing.
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