Germany: Minister of Finance announces a “turning” of budgetary policy

In a strategy published on Wednesday, the Liberal Minister of Finance, Christian Lindner, reaffirmed his attachment to the national rules in force concerning debt.


The question rose in German economic circles, when the government has multiplied exceptional expenses funded by the loan in recent months: the Minister of Finance, Christian Lindner, leader of the Liberal Democratic Party (FDP), renowned ” falcon “of fiscal policy, would he have lost his greenhouses?

The development was given on Wednesday May 11: in a strategic document, the minister said his intention redo the reduction in debt and the fight against inflation his priorities, after a period deemed “very expansive “. “2023 marks the start of a new phase of budgetary policy,” he said.

The time is therefore a return to strict public debt rules, even though the Ministry of Finance Tables on much more comfortable tax revenue than anticipated in November 2021: 40 billion euros additional this Year and 220 billion euros by 2026, according to an estimate published Thursday, May 12.

“great uncertainty”

For Christian Lindner, this unexpected rain of tax revenues is not an excuse to postpone the budgetary fix. “The current tax estimate comes in a period of great uncertainty,” he said on Thursday. The day before, he had drawn up a similar observation: “The war in Ukraine marks a turning point in many areas of German policy.” In addition to the inflection in terms of security, Germany began an expensive weaning of its dependence on hydrocarbons Russians. At the same time, its economy is very affected by the measures against the COVID-19 imposed in China and by geopolitical disturbances, which affect international exchanges and supply chains. All this weighs on growth, at half mast, while inflation is maintained at a high level.

The risk of a “stagflation era” is real, summed up Mr. Lindner. According to him, the situation justifies a “break for the economic, financial and budgetary policy of Germany”. The new strategy he defends, called “fiscal policy in the change of time” is a direct reference to the speech of Chancellor Olaf Scholz, pronounced a few days after the Russian aggression in Ukraine. In fact of “rupture”, it is above all a desire to return to the German ordoliberal tradition. The text proposed by the Minister was influenced by economist Lars Feld, a famous supporter of this liberal school, also present Wednesday during the presentation of the document. Unsurprisingly, he advocates, “once the crisis is stabilized”, a “return to normal” in public finances and the constitution of “security reserves,” faced with the challenge of the rise in interest rates and the aging of the population.

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/Media reports.