International Political Dialogue - Right Path, Wrong Direction for the German Financial Policy

International Political Dialogue - Right Path, Wrong Direction for the German Financial Policy [printable version]

Right Path, Wrong Direction for the German Financial Policy
Washington D.C.

In a discussion on the situation of public finances in Germany, Mr Otto Fricke, member of the German Bundestag, provided proof that numbers and public budget matters need not be subjects dry as dust when he was speaking at an invitation of the Transatlantic Dialogue Programme of the Friedrich Naumann Foundation for Liberty in Washington D. C.

As chairman of the Budget Commission of the German Bundestag, Mr Fricke’s post does not have anything to compare it to under the U.S. parliamentary system, because the latter has separate Budget and Appropriation Committees. Also, his American audience was surprised to learn that a member of the largest opposition party may chair this important body.

In his speech and also in the ensuing discussion, Mr Fricke clearly emphasized one particular point: At a first glance, the budget policy situation seems to be better than it actually is. Although the latest budget showed positive figures, the entire debt burden of the federal government, now standing at about €920 billion, was still three or four times higher than government revenue. The reason for a positive balance sheet in the present budget year was not, however, to be seen in a reduced rate of expenditure, but rather it represented the result of a higher tax take. Over and above, the expenditure side hardly leaves any headroom for the future, because eighty per cent of the budget has been allocated right from the beginning. Social affairs, work, and health are the largest individual items; measures of family policy have claimed a strongly growing part of spending. Low flexibility of spending plans also brings up a dependency on the given state of the economy. This was a dangerous state, particularly in view of fall-off in growth rates at present. Following Fricke, falling investment rates represented another long-term negative trend of the federal budget as well. While this rate stood at 12.5 per cent in 1989, it had dropped to 10 per cent in 2002 and amounted to 8 per cent in 2007.

Mr Fricke criticized the finance policy course pursued by the Grand Coalition: The present CDU-SPD government partially or entirely reversed sensible reforms of its predecessor. In this Grand Coalition, the interests of both partners are acted on in a spirit of reciprocity; as a result, higher spending was more or less structurally inherent in this present configuration. Therefore, federal spending grows faster than the economy. Over and above the deficit of budget policy in Germany, Mr Fricke complained that there is a double deficit in the awareness of citizens in Germany that gives rise to concern: A lack of understanding regarding the debts of public budgets on the one hand, and on the other hand a missing understanding of “who really earns the money”.