Another German budget without new debt

German Minister of Finance Scholz and Chancellor Merkel at the budget debate. [EPA-EFE/CLEMENS BILAN]

The German Bundestag adopted the national 2019 budget with the votes of the ‘Grand Coalition’ last Friday (23 November), with expenditure reaching a record €356 billion and a particular rise in defence spending. Nevertheless, Finance Minister Olaf Scholz has managed to avoid creating any new debt. EURACTIV Germany reports.

A few days earlier, the European Commission expressed satisfaction with Germany’s spending and income policies. This came as the authorities in Brussels presented the EU’s Autumn Package, which also contains an initial assessment of national budget plans. Germany was one of the ten countries where there were no objections, as the German budget was fully compliant with the Stability and Growth Pact.

60% debt mark within reach

This assessment was no surprise given that Berlin has been regularly generating surpluses since 2014. Moreover, Germany is on the way to meeting the guideline of having a maximum total debt of 60% of GDP in 2019, for the first time in a long while.

This may even happen ahead of schedule in 2018, the federal minister of finance rejoiced in the budget debate. In 2010, German debt-to-GDP ratio was still over 80% but this may have already been reduced to 63.9% by 2017.

In the process, Germany has certainly benefitted from other countries’ problems. Particularly during the euro crisis, investors fled in droves to German government bonds, which were seen as the last remaining safe haven for investors.

At times, refinancing costs slipped into negative territory, so Germany could earn money through the accumulation of debts. Those were favourable conditions for putting the budget in order.

Parliament urges Council to start negotiating on next EU long-term budget

The European Parliament laid down funding priorities for the next long-term EU budget on Tuesday (13 November) and urged the Council to agree on a common position so that talks be completed before next May. But differences still remain about the level of member states’ contributions.

On the other hand, critics regard the “fetish” of no new net borrowing as a missed opportunity. The German government is subject to continual criticism because the favourable financial environment could also be used to address problems such as the widening investment gap or the rising social inequality.

These critics say that more money is urgently needed in other areas, such as education, the digital agenda, care and public infrastructure.

However, it is another area in the now-adopted budget where spending will increase particularly strongly and will make the overall 2019 budget a record one. The clear winner in this allocation of funding is the Federal Ministry of Defence.

Minister Ursula von der Leyen’s budget increased by a good 12%, amounting to €43.2 billion next year. This increase may also be due to the pressure applied by the USA for Germany to increase its contributions to NATO. Germany’s obligations under the EU defence union will continue as usual.

Other areas will also receive more funding. For instance, the government is also bundling a so-called “burden-relieving package” of almost €10 billion, which also contains an increase in child support and higher tax-free allowances, with the budget. Moreover, the Bundestag is opening the way to support the digitisation of schools with €5 billion from federal funding in the coming years.

Controversial debate over budgetary plans

The opposition strongly criticised the budget plans. “How do we ensure social peace? How can we prevent a climate catastrophe? How can we strengthen a united Europe? A responsible government has to search for and find answers to all of these questions,” said the leader of the Green parliamentary group Anton Hofreiter during the parliamentary debate.

“But what does the reality look like? We are seeing a coalition, which, as a big self-help group, is above all occupied with itself and has not been preoccupied with the people’s concerns and needs for a while,” he added.

Juncker: If we accept the Italian budget, 'countries would insult us'

European Commission President Jean-Claude Juncker told Italian media on Tuesday (16 October) that he could not accept the extra spending budgeted by the Italian government because other member states would “insult” the institution.

The budgetary politician from Die Linke party (“The Left”), Gesine Lötzsch, criticised the fact that military spending was being increased substantially while money was being saved in other areas.

“€2 billion is supposed to be provided for the ‘all-day school programme.’ You have to be honest and say: this €2 billion was in the draft budget and were removed overnight. It’s a disgrace,” Lötzsch said.

The governing parliamentary parties do not want to accept the criticism of the planned tax relief for families and additional funding for digitisation.

“The 2019 federal budget, which was adopted today, has the right ground compass and bears the handwriting of the social democrats. It is a budget with concrete improvements to daily life and considerable investments in the future of our country,” emphasised the leader of the SPD parliamentary group Achim Post.

“The budget removes the burden of families and employees and invests in good schools and nurseries, in education, research, digitisation, the police and the strong rule of law.”

Federal Minister for Economic Affairs and Energy Peter Altmaier emphasised in particular that more funding would be made available to his ministry in 2019 for future-oriented investments.

“We are therefore strengthening Germany’s ability to compete and be innovative and are contributing to setting up the German economy. In 2019, the spending of the Federal Ministry for Economic Affairs and Energy on research and development will increase by €132 billion. This will particularly benefit small and medium-sized businesses, for example through our proven Central Innovation Programme for SMEs (ZIM).”

Furthermore, an additional €30 million will go to measures which should bring forward the digital transformation of the German economy.

EU criticism of German trade balance

However, criticism did not come only from the German opposition. People in Brussels are not entirely satisfied with Germany’s performance. The Autumn Package contains comments on countries’ budgetary plans, but also the Alert Mechanism Report, which addresses economic imbalances between the member states.

German economy booms but Brexit and US clouds are on the horizon

The German economic powerhouse is booming. But its export-centric model is drawing complaints from other eurozone countries and the United States.

In the report, there is concern about, among other aspects, the fact that Germany has been exceeding the 6% limit in the EU for trade surpluses for many years.

“Since 2011, there has also been a gradual increase in Germany’s large current account surplus. At present, the current account surplus of the euro area is mainly the result of large surpluses recorded in Germany and the Netherlands,” stated the latest report.

The Commission considers Germany’s excessive surpluses to be a risk to eurozone stability and therefore wants to thoroughly examine the German plans.

Moreover, there is also criticism of the high housing prices and low investments. However, there might not be too much hope for improvement in Brussels because Germany has been one of the countries with the worst rates of implementing the Commission’s country-specific recommendations for many years.

Furthermore, the German federal government continually says that is confident with respect to its surpluses, which are strongly criticised internationally. It says that these are consequences of Germany’s excellent competitiveness and there is little politicians can do about it.

Further Reading

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