"Enough with the debt brake."
A letter from ... Dr. Christian Jasperneite. The chief strategist of M.M.Warburg & CO says why saving no longer makes sense after the resignation of Bundesbank President Weidmann.
I know - those who have known me for a while may rub their eyes in surprise at this headline. After all, I've been arguing against runaway national debt for decades.
But here I am, and I can't help it. For ten years, Jens Weidmann, as head of the Bundesbank, has fought tirelessly to prevent the ECB from becoming an institution that sees its essential task as refinancing eurozone states on the cheap. Now he has thrown in the towel. We are facing a period in which the ECB's monetary policy is no longer in the tradition of an independent Bundesbank but that of southern European central banks that were treated by their states like departments of the finance ministry.
At the same time, the EU Commission is debating softening the Maastricht criteria and allowing debt levels of 100 percent instead of 60 percent relative to national product. This fits together. Because with debt at 100 percent the calculation only works out mathematically with plausible assumptions regarding growth if interest rates are assumed to be close to zero percent virtually forever. This is precisely what the ECB seems to want to guarantee.
At the same time, the EU is developing into a transfer and liability union in which budgetary risks are increasingly shared. One step in this direction is the 750 billion euro Corona bailout fund. The pandemic will pass, but joint financing and liability will remain.
Clearly, the rules have changed in Europe. I ask myself: is it then still economically rational to apply a national debt brake? After all, with new Maastricht criteria in place in the future, this would cement the gap in debt between Germany and the rest of the EU. Germany would slowly move back towards 60 percent, while for the rest even reaching 100 percent would be almost utopian. As a reminder, the EU average excluding Germany is more like 110 percent already - and rising.
The advocates of the debt brake say that Germany must save in order to keep its credit rating - and thus that of the EU - at the top level. I think that is economic madness. No country in the world would be so altruistic as to save itself almost to death in order to maintain a credit rating that in a monetary and liability union primarily benefits the others.
One can put it even more bluntly. In this situation a German special path would only make sense if it planned to leave the club and thus the EU and the Eurozone. Because then it would once again be solely liable for its debts.
That's exactly what no one in Germany wants, and that's just as well. But if we make a conscious decision to remain part of the EU and the eurozone, and if we are obviously no longer in a position to influence the shaping of the rules - see the resignation of Bundesbank President Weidmann - we should adapt our behaviour to the new rules.
For example, if Germany were to raise its debt to the level of the other EU countries, we would be able to spend almost an additional EUR 1600 billion. Those who find it difficult to classify this figure: The entire federal budget is around 400 billion. We could easily dramatically increase education spending and massively cut taxes. Infrastructure could be renewed from the ground up and investments for climate change could be boldly tackled.
Skeptics may now ask: Can this go well? Suppose this course drives us all up against a wall in 20 or 30 years. Then it would be better to start afresh with a good infrastructure and a well-trained workforce than with a country that has saved itself to death by then, is then jointly liable for all the others and therefore still has to start from scratch. That is why the debt brake must now go.