Cons: Debt brake equals investment brake

The debt brake lives up to its name: it slows down Germany. In times of cheap credit, we must not miss important investments in infrastructure, education and social justice. Future generations will thank us, comments Mersha Hollith from the German Federation of Trade Unions.

Anyone building a home takes out a loan. If you have a good business idea, you borrow money to invest. The loan makes company foundations as well as later profits and growth possible. Nobody would think of banning private individuals or entrepreneurs from the loan agreement with the bank and thus preventing future-oriented investments. Only politics is tightening itself in Germany itself: First, the debt rule of the Maastricht treaties was enforced in the EU. Then the German debt brake came into the Basic Law. The European fiscal pact followed a little later. But that’s not all: The German government’s new budgetary goal, which has been raised to an ideal, is called “Black Zero”.The aim is no longer to keep new debt within limits, but to generate a budget surplus.

Debt reduction at the expense of investments

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For example, an active fiscal policy that compensates for economic fluctuations and ensures stable economic growth has been effectively overridden. Deleveraging becomes a priority of fiscal policy across business cycles. Public investment in private was cut back. Result: dilapidated infrastructure, impassable bridges, underpriced living space and much more.

In order to achieve the savings target, public spending was cut, many public services fell victim to the red pencil or were privatized. Fees were raised and user charges such as truck and car tolls were introduced. In short: Germany switched from investment to economy mode with the debt brake. The debt brake became an investment brake.

 

Germany has an investment backlog in both the public and private sectors

debt loans

In order to reach the OECD average, Germany has to invest around 90 billion dollars annually. This corresponds to three percent of economic output in 2013. Public investment in private has become a victim of austerity policies, including municipal investments. According to estimates by the Astro Lending municipal panel, the total municipal investment backlog has now reached 118 billion dollars. Union and SPD have agreed in their coalition agreement that they want to reach the OECD average. However, this goal remains a long way off if you continue to stick to austerity measures, the debt brake and “black zero” and neglect investments. The problem becomes even bigger because infrastructure that is not maintained costs more in the end.

Germany today has a probably unique opportunity to remedy its weakness in investment, because the state generates large surpluses and hardly has to pay interest on loans. Politicians should seize this opportunity and act decisively. Roads and railways in need of renovation, but also schools, day-care centers and district centers could be modernized. This would create the basis for growth, jobs, competitiveness, prosperity and an intact community of tomorrow. This is reasonable, inexpensive and fair to today’s and future generations.

Contact Mersha Hollith from the German Trade Union Confederation considers the debt brake to be a dangerous illusion. Instead of ensuring more security and stability, it prevents important investments – especially in the country’s social infrastructure. The “black zero”

Missed the mark

debt loans

The German government only wants to use the good budgetary situation to pay off debts in order not to burden future generations with high debts. But it is not only debts that burden future generations. Today too little private and public investment threatens tomorrow’s prosperity and employment.

If we want to avoid the march to the fee-based state, if we want to leave future generations with not only less debt, but also an intact community, we must have a broad debate today about the meaningfulness of investments and savings efforts. Neither is an end in itself. Both goals must be in an appropriate relationship to each other in the interest of current and future generations. So far, important investments have gotten under the wheel.Now we have to take advantage of the economic tailwind and switch from economy mode to investment mode again – despite the debt brake and the “black zero”.

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