Not all debts are the same – this is easy to understand in private. A loan to finance a property you use yourself makes sense – as long as the property is not overpriced and the borrower can meet the monthly interest and repayment installments. In this case, debt is a means of building wealth.
Things are different with consumer loans. Anyone who can only afford the purchase price of a new television, a stereo system or a coffee machine through installment financing should stay away from it – even if the monthly income may be enough to pay for it. Financing unnecessary consumption on credit is a direct route into the debt trap. So there is good debt and bad debt.
What applies to private individuals is no different for the state. Financing consumption with loans is a bad idea. A company should be able to cover social benefits, cultural support, healthcare and administration from its current income, otherwise sooner or later there will be a crash. Conversely, investments in state infrastructure can certainly be financed through loans, as they are offset by concrete assets in the form of roads, bridges or buildings.
An overview of the budget dilemma
It is important to remember this difference, because since the Federal Constitutional Court stopped the traffic light coalition’s attempt to circumvent the debt brake on the Wednesday before last, two camps have been irreconcilably opposed in the public debate. One side points to record public revenues and insists that the government should finally make savings. The other warns of a recession that could be triggered by a lack of government spending.
Neither position is absolutely correct. It is true that the German state has invested far too little in recent years. Roads, railways and schools were subjected to wear and tear. It will cost many billions to clear this investment backlog. The balanced budgets came at a high price – which must now be paid.
At the same time, it is true that in the past it was mainly the grand coalitions that spent the saved infrastructure funds elsewhere. Mother’s pension, basic pension, pension at 63, building child benefit, increase in child benefit – when it came to satisfying their own clientele, the Union and the SPD were extremely creative. In the good years, both blacks and reds were primarily concerned with distributing and not with generating wealth.
Suspension of the debt brake also important for 2024
The traffic light coalition now has to compensate for these failures – with the difference that the good economic years are over and that the Karlsruhe judge’s ruling has also caused it to lose its most important financing instrument.
There is no way around an honest inventory. Which expenses are mandatory? Which ones are central to the future? Which ones are dispensable? At the end of such an honest balance sheet, the government would know whether it can get by with tax revenue and credit lines from the debt brake or whether it needs additional sources of financing.
However, such an opening balance will never be possible in the two weeks that remain until the budget for the coming year is passed. For 2024, a renewed suspension of the debt brake would be the right way. Finance Minister Christian Lindner can still prove himself as a budget balancer in the 2025 election year. But then really.
2023-11-28 18:56:10
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