The Federal Minister of Finance wants to drastically reduce new debt – and is receiving support from EU financial experts.
(Photo: dpa)
Berlin Federal Finance Minister Christian Lindner (FDP) receives support from the European Union for his call for a reduction in new debt. The European Fiscal Committee (EFA), which advises the EU Commission as an independent body of experts, is in favor of a cautious spending policy in the monetary union in the coming year in order not to fuel inflation even further.
Lindner had argued similarly when he presented his draft budget for 2023, which provides for compliance with the debt brake. To do this, the Minister of Finance must drastically reduce new debt from 139 billion euros in the current year to 17.2 billion euros in 2023.
“Fiscal policy should remain flexible and shift the focus to debt reduction,” says the latest report by the Fiscal Committee. In view of the current crisis, an expansive fiscal policy – i.e. a debt-financed increase in government spending – is not necessary. Because the current economic slowdown due to the Ukraine war does not go hand in hand with a weakening of demand.
“On the contrary, private consumption and investments are still robust,” write the experts. An expansive financial policy based on government spending programs is therefore counterproductive, as it would intensify inflationary pressure without tackling the causes of the economic slowdown.
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The Federal Ministry of Finance feels confirmed by this assessment. “A crisis is not always the same,” said Finance Secretary Florian Toncar to the Handelsblatt.
With Corona, the state had to compensate for the collapse in demand and had to go into debt to do so. Currently, this would be wrong given high inflation and shortages in many markets – from energy to food, building materials and the labor market.
“It would fuel inflation even more,” Toncar warns. “The states must now put their budgets in order and, in the medium term, even build up fiscal buffers, i.e. reserves for future crises.”
Speedy return to the debt brake
The Fiscal Committee also recommends that European countries reduce their debt in order to create leeway for future crises. For now, governments should focus on “mitigating the impact of the shock on the hardest-hit households through redistributive policies while continuing the consolidation trajectory.”
The advice of the International Monetary Fund (IMF) recently sounded similar. “For Germany, this means a return to the debt brake as quickly as possible and further reforms that will ensure more growth,” said Toncar. Lindner had announced the end of the “financial emergency” for 2023.
More: Christian Lindner – The Sorcerer’s Apprentice and the Mountain of Debt