The FDP Federal Chairman and Federal Minister of Finance Christian Lindner MdB wrote the following guest article for the “Handelsblatt” (Thursday edition) and “handelsblatt.com”:
Since the European sovereign debt crisis, we have known that the stability of the euro cannot be taken for granted. In a monetary union, clear rules are necessary to secure the common means of payment. The European Stability and Growth Pact serves this goal. It is more binding than the old pact was. Sound and sustainable finances in all Member States are more necessary than ever. Because the costs of the crises of the past few years are still on the books of the states as debts. Only if we reduce the high debt ratios will we develop a buffer so that we can continue to react to unforeseen events in the future.
How long the road to lower debt is is clear at the fall meeting of the International Monetary Fund (IMF). The debt ratios of most countries are rising steeply. The IMF expects global government debt to exceed $100 trillion by the end of the year. He warns of dangers for the global economy. We in Germany are one of the few countries that are bucking this trend. In this way, we have a stabilizing effect in the euro zone and in the international financial order.
It is repeatedly argued that one has to choose between solid public finances and improving competitiveness. It would be wiser to take on more debt now in order to invest and grow. However, national debt cannot be had for free. They burden future generations. They can promote inflation. You can’t buy lasting growth through debt.
During the sovereign debt crisis, the costs of debt became a real risk to stability. This is often forgotten. In any case, the effect of government subsidies is overestimated. 90 percent of future investments come from private investors. The state cannot replace them. Politicians and civil servants are not better entrepreneurs either. We should work on making Europe more attractive for private capital instead of constantly inventing new pots of debt.
The reformed pact provides for a medium-term fiscal-political-structural plan for all countries, compliance with which is reviewed annually. The EU Commission recommends each member state an individual reference path for spending growth. The criteria include minimum requirements for reducing the deficit and debt ratio. It was a success for the federal government that the pact creates more commitment here.
For Germany, it is clear that public finances are fundamentally sound as a result of compliance with the German debt rule. However, due to demographic change and long-term growth that is likely to be lower than in the past, there is still a great need for action.
The federal debt rule limits the federal budget, and the European Union (EU) fiscal rules also limit the fiscal policy of the state as a whole. Both rules complement each other. One thing is clear: our general government spending growth must be reduced. For the federal government, the European rules create an additional need for consolidation that goes beyond the requirements of the debt brake. Above all, consumer spending, especially social welfare benefits, must decrease in order to enable investments in the future.
Technical discussions are currently underway with the European Commission. For me, the path forward is clear: We must push forward the consolidation of budgets not only at the federal level, but across the state as a whole. At the same time, we also need structural reforms from a European perspective. Otherwise, state budgets would “petrify” – scope for future investments would be used up because too much of the tax revenue goes into redistribution.
Our behavior will send a signal to Europe and beyond. If we implement the pact half-heartedly in our country, we will motivate other countries to forego reform efforts. That would be negligent. The consequences would ultimately affect us all. We would lose monetary stability.
In view of demographic developments, reforms are necessary for us anyway. Thanks to the growth initiative, the first important steps have been agreed and we should implement them quickly. But we have to go beyond this, both in terms of the financing of the welfare state and the strengthening of competitiveness. This is the only way we can live up to our role model function as an anchor of stability in the economic and monetary union.
