Debt or no debt? German coalition parties drift further apart

Germany’s Finance Minister Christian Lindner took aim at his coalition partners’ stance on the country’s debt break rules on Wednesday (13 March), underscoring the widening divide between the country’s three ruling parties.

The ideological differences between the leading German parties have meant that, from its inception, the country’s three-party government coalition has been no love marriage. However, the current economic crisis – which will see the country close to a second year of recession this year – is driving them apart even further, with senior representatives highlighting their divergences rather than setting out a joint economic agenda.

While Economy Minister Robert Habeck (Greens) on Tuesday kicked off a new €23 billion subsidy scheme to help energy-intensive industries decarbonise and promoted an even bigger use of subsidies financed with additional public debt, his liberal coalition partner has sharply rejected the idea.

“There are now voices […] suggesting that we must take on new debt in order to then use the funds raised to pay subsidies to companies so that they can transform, or to be competitive,” Lindner (FDP/Renew Europe) told a conference of small- and medium-sized businesses on Wednesday (13 March).

“I warn against excessive national debt,” he said.

Lindner added that he was also against this idea for more fundamental reasons, because “the idea behind is that, for example, the DGB [Confederation of German Trade Unions] and the Economy Ministry negotiate [who should receive subsidies]”.

“But it is not up to politicians or anyone else to decide which technology, which company, which industry has a future,” he said, adding that this should be a question of “market-based competition”.

On the country’s fiscal position, he added: “We also have a role model function in Europe in view of the sharp rise in debt levels in France and Italy, for example.”

Instead of debt-financed subsidy schemes, Lindner is overall advocating for a broad reduction of corporate taxes, highlighting that “this is something on which I also agree with the CDU/CSU opposition”.

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One percent of GDP ‘to solve all problems’

Habeck, for his part, highlighted on Tuesday that he didn’t want to “fuel” the ongoing conflict between governing parties, “because what also weighs on the economy, if not the good mood, is an eternal dispute between the governing parties”.

Nevertheless, Habeck questioned the strict ‘debt brake’ set in the German constitution, arguing that it would only take an additional 1% of GDP, or €41 billion per year, “to solve all [the country’s] problems”.

Habeck argued that for the purposes of shoring up the economy, that would be “really a lot of money, and just maintaining or having flexibility would help enormously”.

“So perhaps we can somehow make progress by taking a pragmatic approach and not engaging in religious debates,” he added.

Lars Klingbeil, co-leader of the biggest government party SPD (S&D), backed Habeck’s view at a conference of the SPD Business Forum on Tuesday, highlighting that more investments were needed in defence, industry, infrastructure, and “social cohesion”.

“We won’t be able to do that if we are torturing ourselves with the debt brake and stifling important future investments that need to be made in this country,” Klingbeil said.

“And that’s why we need a change to the debt brake so that investments can be made to ensure that Germany will still be a strong country in 10 and 15 years’ time,” he added.

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Unemployment benefits and pension system reform also called into question

In his sweeping blow, Lindner not only criticised the fiscal stance of his coalition partners, but also questioned some recently-struck agreements, such as those on unemployment benefits and a reform of the public pension system.

“The working life must be extended not only to limit the future development of contributions, but also to reduce labour market problems,” Lindner said – a blow to his social-democratic coalition partner SPD, one of whose key promises it is not to increase the retirement age or put into a question a system that allows people to retire early if they have paid into the pension system for 45 years.

On long-term unemployment benefits, which have been substantially increased since the three-party coalition of Olaf Scholz has taken office, and re-named into ‘citizen’s benefits’, Lindner said incentives to work need to be strengthened, to ensure that the level of benefits allowances wouldn’t disincentivise recipients from going back into the workforce.

“It’s a mystery to me every month,” Lindner said, “on the one hand, many thousands of people are in receipt of the ‘citizen’s benefit’ and on the other hand, jobs in the SME sector cannot be filled.”

“The citizen’s benefit is not a universal basic income, it is a solidarity benefit that is only granted for a limited period of time,” Lindner said, adding that “it must always be clear that working is preferable to not working in every family constellation.”

Klingbeil, in contrast, said he is “experiencing in economic policy debates these days that social issues are being played off against the economy”.

“We will not allow that to happen,” he added.

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[Edited by Nathalie Weatherald]