German finance minister urges EU to limit public spending

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The EU’s decision to suspend its deficit and debt rules for another year is no excuse for member states to persist with lax spending policies, German Finance Minister Christian Lindner said in a statement. a call for more budgetary discipline.

“The fact that member states are now able to deviate from the Stability and Growth Pact does not mean that they should actually do so,” Lindner told the Financial Times.

The Stability and Growth Pact, which enshrines EU fiscal rules, was suspended at the start of the Covid-19 pandemic as economic output in Europe slumped.

The European Commission expected to reimpose the rules early next year as a post-pandemic economic recovery takes hold. But the war in Ukraine and the resulting spike in energy prices led Brussels to extend the suspension for another year.

Speaking on the sidelines of a meeting of G7 finance ministers in the Rhineland town of Königswinter this week, he hinted that other EU countries should take inspiration from Germany‘s book.

“We will not take advantage of the general escape clause [but] will come back to our national debt brake, which is entrenched in our constitution,” he said, referring to Germany’s strict deficit ceiling.

The pact, which aims to control borrowing by member states, stipulates that public debt must not exceed 60% of gross domestic product and that budget deficits must not exceed 3%.

Some member states have argued for reform, saying certain types of strategic public spending – such as defense investment or climate change mitigation – should get preferential treatment.

But Lindner has made clear he opposes it and warned against viewing the suspension as an opportunity to rethink the EU’s set of rules. “The decision to extend the escape clause should not be seen as a precedent or a prelude to reforming fiscal rules,” he said.

He acknowledged there was room for “more flexibility” in how they are applied, but insisted the EU needed a “reliable long-term path to debt reduction public”. . . As far as our ultimate goal is concerned, we should become tougher, not softer”.

With inflation on the rise in the group of major G7 economies, Lindner argued that swift action was needed to return to macroeconomic stability and what he described as a “neutral fiscal stance”.

“There is a real danger of stagflation,” he said. “That’s why we need to act urgently.”

Lindner, leader of the liberal, pro-business Free Democrats, has a reputation as a tax hawk, despite having strong pro-EU sympathies. He is a strong supporter of a return to the debt brake as soon as possible.

He has often warned that some countries in Europe had accumulated too much debt during the Covid-19 crisis and must now make efforts to clean up their public finances, especially against a backdrop of rising inflation in the euro zone.

“If you look at the data, you see that we need to stop our expansionary fiscal policies and stop intervening in the market economy with these big government spending programs,” he said. “We must reduce our budget deficits and. . . send supply-side signals for more growth.

Lindner also said he was opposed to the EU raising new debt to cover Ukraine’s financing needs, like the EU’s €800 billion Next Generation Fund. , which was designed to help Member States rebuild after the economic crisis caused by the pandemic.

“It was a one-off decision,” he said. “Germany does not support the idea of ​​repeating the joint debt issuance.”

He drew a distinction between calls for a new round of joint borrowing and the €9 billion in financial aid the EU is discussing for Ukraine, describing the latter as “a different tool that we have used in the past, based on national guarantees which are then used to jointly support third countries”.

Lindner also touched on a proposal that EU capitals should consider seizing Russia’s frozen foreign exchange reserves to cover the costs of rebuilding Ukraine after the war, which was launched earlier this month. by Josep Borrell, EU High Representative for Foreign Policy.

He said Germany was “open” to the idea, but “we still need to understand the legal issues and the consequences for the rules-based international order”.

Lindner, however, said he was against seizing the private assets of Russian oligarchs. “Countries based on the rule of law guarantee private property,” he said. “The obstacles to its confiscation are very high.”

He proposed that private actors such as the oligarchs be persuaded to “contribute to reparations for Ukraine, on a voluntary basis”. “There should be a political discussion about this. . . which I would like to be a part of,” he said.

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