The Federal Minister of Finance wants to largely retain the debt rules, but enforce them more vigorously.
(Photo: Andreas Pein/laif)
Christian Lindner presented the German proposal to reform the European Stability and Growth Pact. First of all, the Federal Minister of Finance is bowing to reality: He accepts that the one-twentieth rule can no longer be maintained after the Corona debt spree. The rule stipulates that a country must reduce its debt to the Maastricht ceiling of 60 percent of gross domestic product within 20 years.
With a debt level of 150 percent, as in the case of Italy, that would mean a brutal austerity program that plunged the country into a deep recession. Since the situation in a number of euro countries is similar, sticking to the one-twentieth rule would be unworldly. There is therefore a broad consensus in the EU that it must be abolished.
However, because Lindner wants to save face as the German savings commissioner, he proposes tightening elsewhere. He wants to “bindingly enforce” the rules on the medium-term budgetary targets, he says.
Exactly how this is supposed to happen is still unclear. So far, the EU Commission has had a great deal of discretion here. The authority usually uses this leeway in close consultation with the national governments. This explains why, despite numerous violations of the Maastricht criteria, there have never been sanctions against a country in the 25 years of the pact’s existence.
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The big hit is not Lindner’s suggestion, rather he is only turning a small screw. Critics therefore call his plan unambitious. But it would also be quite right for the liberals if the Stabilization Pact didn’t change much at all. In his view, any major reform can only lead to a softening of the rules.
Other EU countries have more far-reaching ideas. Several governments want to exclude certain investments from the budget deficit calculation. They argue that investments in green technologies or digitization increase the economy’s potential growth and thus solve budgetary problems in the long term.
Instead of exacerbating a crisis with austerity measures, they want to be able to boost growth with investments and thus act anti-cyclically. They cite the Corona reconstruction fund as an example. Lindner’s coalition partners from the SPD and the Greens also share this view.
What is included and what is not?
From an economic point of view, the distinction between consumptive government spending and investment makes sense. On the other hand, such a golden rule for investing immediately raises the question: what is included and what is not?
Experience shows that governments are very creative in redeclaring expenditure items in their budgets. There is a risk, therefore, that all sorts of spending would suddenly be directed towards the service of the environment – or defense or some other politically desirable purpose.
The dispute as to whether stability or growth should be the priority has accompanied the pact from the start. German politicians often only speak briefly of the Stabilization Pact, thereby making their preference clear. Your French colleagues, on the other hand, never forget the growth aspect.
Lindner’s suggestion is therefore not the last word. The question of how to deal with the investments is likely to be hotly debated. It’s going to be a hot autumn.
More: Handelsblatt interview with Christian Lindner – this is how the finance minister wants to reform the stability pact.