Germany doesn’t have to save, it has to invest. The conditions are ideal. There is no need for a tax debate now. A guest post.
When Germany wants to remain a good country, it has to change. It must operate more ecologically and distribute its wealth more fairly. For this we need a different, new policy: a policy that not only reacts to the Corona crisis, but also connects the fight against the crisis more closely with the socio-ecological restructuring of the country.
First of all, we have to cope with the corona crisis, which has hit us hard socially and economically. Second, the course must be set for climate neutrality so that the economy remains strong and offers good jobs. This requires major investments – in the production of renewable energies, transport, the restructuring of industry and agriculture, in research and innovation, in Europe’s competitiveness. Thirdly, the Corona crisis has exacerbated social inequality in the country again. If that was a major social problem before the pandemic, an answer is now even more necessary.
These major tasks will bring a debate back to Germany in the election year 2021 that we have not had for a long time: It is about the right balance between thrift and investment, between taxes and justice. As much as this is interwoven, it needs specific answers.
Debt brake is economically and politically wrong
Combating the pandemic and its consequences is without question expensive. But society would pay a much higher price if the state did not take the many billions in hand. It is understandable that people get drowsy when they hear the amount of money involved. In fact, the debt ratio of the German state will rise in one year from below 60 percent to probably more than 70 percent in relation to the gross domestic product (GDP). Who, it is asked, should pay for the whole thing? In order to calm down, the federal government is aiming for swift repayment of debts and a swift return to the rigid debt brake of 2022. Both are economically and politically wrong.
If savings are made during an economic crisis, it intensifies. If everyone saves, i.e. too little money is spent, unemployment and new economic crises arise. We should have learned our lesson from the financial and euro crisis: the austerity policy of that time cost people work and livelihoods and gave a boost to populism, not too loose a fiscal policy.
For a classification of the current indebtedness, it is not the absolute amount of the loans that is meaningful, but their relationship to the economic strength of the country. Germany is an economically very, very productive country. Accordingly, the question is not so much how high the debt ratio is, but rather whether we will be able to handle the major tasks of this decade.
Optimal investment conditions
In addition, interest rates have been extremely low or even negative for years and will be for the foreseeable future, so that the state actually pays nothing for borrowing money. German government bonds are very popular as collateral. Since Germany is the largest economy in the euro zone, banks and insurance companies have to hold German bonds as collateral and countries have to invest their euro currency reserves in them.
The conditions for investments are therefore ideal. If you can borrow at zero interest rates, use those loans to invest, and thereby flourish the post-crisis economy, create new jobs, and collect taxes, your debt will shrink. So it was after the financial crisis, from which Germany emerged with a debt ratio of 82 percent. Between 2012 and 2019, the debt ratio (the amount of debt measured against economic growth, i.e. GDP) fell below 60 percent again. Much of this was due to higher GDP and only a small part to the decline in debt.