The national debt in Germany has risen significantly in recent years.
(Photo: imago images/photothek)
In 2020, 2021 and 2022, the federal government took on more debt than in the previous 25 years. In an environment of war, energy price shocks, deglobalization and crumbling supply chains, there is little to suggest that we will soon return to the debt brake and the “black zero”.
Germany is not alone with the sharp increase in national debt. The only difference to the other euro countries is that we are starting from a lower level. But how should the ever-increasing debt be dealt with? The options are unpleasant.
First of all, there is the possibility of paying off the national debt with surpluses in the coming years. A look at history shows that there were examples of this approach: After the Napoleonic wars, Great Britain reduced the national debt from 192 percent of gross domestic product (GDP) in 1822 to 28 percent in 1912 through budget surpluses. It’s hard to imagine politically these days.
The hope of being able to reduce the debt ratio through accelerated economic growth is more popular. This was the real reason for the declining national debt in the years before Corona and not the small surpluses in the national budget. Proponents of higher debt like to point to the growth-enhancing effect of government spending.
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However, if you look more closely at debt-financed spending, it is rarely a question of measures such as investments in digitization and education that would increase production potential. The Bundeswehr equipment or climate protection measures do not contribute to higher future economic output and are therefore to be financed from tax money, not from debt.
Growth will not lower the debt ratio
Daniel Stelter is the founder of the discussion forum beyond the obvious, which specializes in strategy and macroeconomics, as well as a management consultant and author. Every Sunday his podcast goes online at www.think-bto.com.
(Photo: Robert Recker/ Berlin)
The constantly increasing debt ratios of the euro countries underline that the expenditure does not lead to the desired growth. Given demographic trends, it is clear that economic growth will not reduce debt ratios in the coming decades.
The theoretical option of haircutting the debt, i.e. state bankruptcy, is extremely rare in the western world and – as can be clearly seen in Greece – is by no means easy to achieve.
Two options remain: one, the possibility of using other countries’ taxpayers, like this France, Italy, Spain and other highly indebted euro countries have been striving for years via transfer and debt mechanisms at EU level. Or just inflation.
The conclusion is clear: it is not worth saving when sharing the currency with countries that rely on redistribution and inflation. Germany should do everything in its power to increase its own growth potential and incur debt for this.
More: Due to Corona and the Ukraine war, Lindner is planning additional debts of almost 40 billion euros