The new German government is confronted with a fiscal conundrum.


The new German government is confronted with a fiscal conundrum.

Germany’s new administration has promised to spend heavily on the economy, climate change, and social security without raising taxes or taking on additional debt, leaving many people wondering where the money will come from.

“We have determined that this will be a decade of investments,” said future chancellor Olaf Scholz as his Social Democrats (SPD) unveiled their coalition agreement with the Greens and the liberal FDP on Wednesday.

Scholz, who served as finance minister in Angela Merkel’s outgoing coalition of the SPD and conservatives, did agree, though, that “the modernisation of our country will not be free.”

While it prepares to assume office in December, the new government has a number of difficult problems, ranging from reaching the Paris climate agreement to maintaining the economy as the country is besieged by a fourth coronavirus pandemic.

Economists estimate that the country will need to spend roughly 50 billion euros per year to handle these difficulties, in addition to putting more money into pensions and health insurance to deal with an aging population.

The SPD and the Greens, both from the center-left, had pressed for more fiscal flexibility at first. However, the pro-business FDP, which takes a hard line on public finances, refused to yield.

Christian Lindner, the FDP’s hawkish leader, will be in charge of the next government’s finance minister.

Lindner is unlikely to be warmly received in Europe as the EU 27 work to overhaul the Stability and Growth Pact (SGP), which governs the bloc’s debt and deficit policies.

According to Holger Schmieding, an analyst at Berenberg Bank, the coalition contract specifies that the SGP must be made “simpler” and must guarantee “a sustainable level of debt” — hardly an indication of any “readiness to modify the pact.”

The accord also commits to restoring the so-called debt brake, a constitutional provision that restricts Germany’s public deficit to 0.35 percent of GDP that was lifted to aid in the fight against the coronavirus pandemic, by 2023.

“We know exactly what we want and how to pay for it,” said Robert Habeck, the Green Party’s co-leader who is slated to chair a new “super ministry” in charge of climate and the economy.

During the epidemic, Germany took on 370 billion euros in new debt, and its public debt has climbed from 59.7% of GDP to a predicted 75 percent this year.

Tax receipts in the following year may be higher than expected. The Washington Newsday Brief News is a daily newspaper published in Washington, D.C.


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