January 16, 2012

The growth skepticism of the finance minister

Article by Oswald Metzger (CDU but former MP (finance committee) of green faction )

Instead of 48,8 bn debt the federal state (of Germany) produced only 17,3 bn of new debt. Reason was no accounting error but the unexpected high growth in Germany. Meanwhile the finance minister demanded a short while ago the "end of growth".

It's rather funny: One month ago finance minister Wolfgang Schäuble philosophized about the saturation of western industrial states and made the limitation of economic growth a theme and condemned the greed of the financial world. (Link to the article in German) It sounded a bit old fashioned like in the 1990s when he - while Kohl was Chancellor - in his function as chief of CDU parliamentary group in form of a book played with the thought of a green-black (>Green party & CDU) coalition.

One month later his ministry in Berlin announced that the new debt of the federal state in the fiscal year of 2011 has been reduced to 17,3 bn .. a third of the originally planned amount of roundabout 48 bn. Never before the deficit of the federal state could be reduced as much as last year. 

The finance minister can build up now a substantial buffer of +-25bn with which he can stick to the constitutional debt limit even in case when in the current fiscal year the Bundestag with almost certainty has to decide upon an additional budget with a substantially higher deficit proposal put to the lawmakers by him. 

"Guilty" of Schäubles' deficit reduction is just that economical growth, which he questioned back in December that critically. A real growth of 3% of the economic performance of last year  helped the federal state to gain almost 20 bn Euro extra tax revenues. Besides that growth driven rise of employment reduced massively the costs of unemployment.

What is the lesson: Without growth of the economy the health of public finances cannot be  restored even in the long term.  And a proportionate growth can be achieved in the long term only by a smart policy of education and investment as well as reforms of the social systems which can handle the demographics.

Source: (in German)

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