Germany says goodbye to austerity to combat the effects of p

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Germany will assume more than 300,000 million of new public debt between 2020 and 2021. This was announced this Wednesday by the Federal Minister of Finance, the Social Democrat Olaf Scholz, in the presentation of the budgets for this and the next four years. The announcement is the official goodbye of Berlin to his until a few months ago non-negotiable austerity, which allowed the containment of public spending and the reduction of accumulated debt to below 60% of GDP before the start of the pandemic.

That militant austerity has, however, also led to an alarming lack of investment in infrastructure such as highways, railways, public schools or expanding broadband use from the internet to the whole country.

“It is a lot of money and we need it to stabilize the situation. But what we do is just the right thing,” said Scholz at the press conference to present the budgets. “We act decisively even if it costs a lot of money. Do nothing it would be much more expensive for the country“said the candidate of the Social Democrats to the chancellery in the federal elections next year.

Scholz announced the extension of aid programs for companies and the self-employed, as well as programs for reducing working hours that have so far contained the increase in unemployment despite the slowdown in economic activity. The federal government wants take advantage of its new expansive policy of public spending to invest in infrastructure and health. Berlin also foresees an increase in tax revenue until 2024.

Debt brake

The economic impact of the restrictions to curb the coronavirus is the only reason that has led the great coalition of Christian Democrats and Social Democrats to say goodbye to the brake on public debt anchored since 2011 in the Constitution of the Federal Republic. The Bundestag (Federal Parliament) now has to approve this exceptional lifting of the constitutional mechanism introduced in the middle of the last great global financial crisisl from a decade ago. The official objective is to reactivate this “debt brake” (which allows new loans to be requested but only up to 0.35% of the country’s GDP) as of 2022.

Despite the current times of exception, the end of budget austerity does not appeal to all parties. The ecoliberals of Los Verdes criticize that the federal government does not allocate enough resources to change the country’s energy matrix or to combat climate change. The liberal conservatives of the FDP, a party that bets on the smallest possible state, accuse Scholz of having lost control over budgets and warn that the fourth largest economy on the planet cannot be financed for long on the basis of debt.

“Debt & rdquor; and “culpa & rdquor;

In German, the word ‘Schuld’ means “debt” and “fault” depending on the context in which it is used. The ambiguity does not seem accidental and points to the moral burden that financial obligations have historically in German culture. Economists have been warning, however, for years that the chronic lack of state investment in vital sectors can have negative consequences on the future of the country, especially taking into account that the business and fiscal muscle of the largest economy in the EU It gives you margin and sufficient guarantees for greater financing in the markets.



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