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Germany must build fiscal reserves for next crisis - Scholz

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By Reuters
Germany must build fiscal reserves for next crisis - Scholz
Germany must build fiscal reserves for next crisis - Scholz   -   Copyright  Thomson Reuters 2021

By Christian Kraemer and Michael Nienaber

BERLIN – Fighting the coronavirus pandemic is the biggest challenge for Germany’s new government and Berlin must create fiscal reserves now to be prepared for the next crisis, Chancellor Olaf Scholz from the centre-left Social Democrats said on Thursday.

Scholz’s three-way ruling coalition with the pro-spending Greens and more fiscally cautious Free Democrats (FDP) has agreed on a supplementary budget to pump more than 50 billion euros ($56.57 billion) of unused debt into a special fund to enable investments for climate protection, sources told Reuters last month.

The cabinet of the new “traffic light” coalition, named after the respective colours of the three parties, is expected to pass and present the supplementary budget next Wednesday.

Speaking at a ceremony to hand over his former finance ministry to FDP leader Christian Lindner, Scholz said the role of the finance minister is “very special” as he always has to deal with all aspects of the government’s policies.

Thanking Scholz for a trustful cooperation during coalition negotiations, Lindner vowed to respect the fiscal rules of the constitution, use taxpayers money thriftily and strive for solid public finances.

SUPPLEMENTARYBUDGET

Senior finance ministry officials have already prepared the supplementary budget as agreed by the coalition parties, Lindner said, adding that Finance State Secretary Werner Gatzer briefed him on the fiscal possibilities in the federal budget.

In a sign of continuity following Scholz’s close cooperation as finance minister with France, Lindner announced that he would call his French counterpart Bruno Le Maire later on Thursday to discuss upcoming decisions in the euro zone and find common ground.

Lindner will travel to Paris on Monday to meet Le Maire in person and deepen the dialogue between the euro zone’s two largest economies.

In their coalition agreement, the three coalition parties have signalled an openness to reform the European Union’s fiscal rules, also known as the Stability and Growth Pact, to enable more investment in the shift towards a green economy.

The new government agreed to use an emergency clause in the constitution for a third year in a row to suspend strict debt limits in 2022 and enable new borrowing of up to 100 billion euros. This will come on top of unprecedented net new debt of 130 billion euros in 2020 and nearly 240 billion euros in 2021.

From 2023 onwards, the new ruling coalition wants to return to the “debt brake” rule of the constitution that limits new borrowing to a tiny fraction of economic output. ($1 = 0.8839 euros)