Saturday

4th Apr 2020

Opinion

Why Germany must spend to beat the eurosceptics

  • Germany runs a budget and trade surplus, and can borrow at negative rates. (Photo: Valentina Pop)

Germany recorded a recession in the second quarter of this year.

Due to its miniscule value (only 0.1 percent) it would be fairer to rather call it stagnation. However stagnation is also pretty bad news compared to Germany's growth rate of more than one percent in recent years.

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  • Germany has announced it will spend €85bn upgrading its railway system between now and 2030 (Photo: Karl Baron/Flickr)

Being the biggest economy in the EU, Germany's stagnation is a very worrisome sign for Europe in a time of a series of bad omens: the negative consequences of Brexit, the Trump trade wars, the slowdown of the Chinese economy, the shaky Italian public finances and even the geopolitical uncertainty in the Persian gulf.

Growth within the entire eurozone has already slowed down and it might get worse.

If we wish a more united, democratic and prosperous Europe, we should be worried. The possibility of a new prolonged period of stagnation or recession might bring us back to the darkest moments of illiberal euroscepticism.

It might fuel again nationalist populism, centrifugal anti-EU tendencies, the rise of far-right and doubts about Europe's common vision and values.

Germany must assume its responsibilities towards Europe and adapt its policies to support a much-needed economic boost in our continent.

Good period for the europhiles?

The gloom and doom of the 2015-2017 euroscepticism seem to have receded or at least been moderated.

The turnout of the 2019 European Parliament elections reached a 25-year high. The mainstream pro-European political groups gained a sizeable majority of seats.

According to the latest Eurobarometer surveys, European citizens - more than ever before - believe that their voice counts in the EU and have a very favourable view of its common currency, the euro.

Trust in the EU is at a very high level, as EU citizens do not see any credible alternatives outside this family of nations, despite its flaws.

Nevertheless, based on the experience from the Brexit referendum and elections in 2015 in Poland, we can see that positive attitude towards the European Union can be rapidly changed when negative, strong emotions, such as fear are used in the campaigns.

That is also reflected in the newest Eurobarometer, as we can see the raise of uncertainty towards the EU: almost 27 percent of the Europeans do not perceive it as something either good or bad.

Anti-Europeans proved they know how to change people's attitudes.

German finances

Germany's public finances seem to be in excellent shape.

It is perhaps the only country in the world that can borrow at negative rates for such a protracted period. It runs a budget and trade surpluses.

The surplus in taxes for the first six months of the year 2019 exceeds €45bn after a surplus of €53.6bn for the year 2918.

Its inflation rate stands at less than one percent. Its public debt still stands at an affordable level – 60 percent of its annual GDP. The government is in the middle of its term and enjoys a comfortable parliamentarian majority.

However, there are signs that this situation might not last very much longer.

Given the high dependence of the German economic model on high export rates, it comes at no surprise that the current turmoil in global trade relations influences the trend indicator of the German economy. The Ifo Institute for Economic Research released its latest two year forecast on 26 August.

It showed future expectations of German managers at the lowest level since 2012. There is also a general sentiment, in the population and with politicians across party lines, that Germany has spent too little on education and infrastructure in recent years.

The government's announcement to spend €85bn on the German railway system until 2030 illustrates the dimension of investment capital needed to preserve or enhance the quality of public services.

Political risks further cloud the horizon.

Like in many other European states, in Germany traditional parties are losing to populists and their simplistic solutions for complex issues.

The rise of the far right AFD (Alternative for Germany), especially in the former East German states as demonstrated in the last weekend, indicates that many citizens are dissatisfied with the solutions that traditional parties offer and feel that their needs and fears are not addressed.

The Social Democratic Party (SPD) has lost dramatically and is on the edge of political insignificance, without a coherent political agenda and no stable leadership.

Despite these obstacles, and perhaps because of them, Germany needs to act as a responsible leader in concert with other European countries and seek to strengthen other European countries as well as the common European institutions.

These investments are the foundation for future success and independence of the EU. Germany has comfortable margins to abandon - at least temporarily - its fiscal orthodoxy and support its society and Europe in a time of global economic uncertainty and slower growth.

The stimulus that we support could take several different forms: higher spending on transport, energy and communication infrastructure; tax breaks for cutting-edge business and direct foreign investments from abroad; targeted spending on social policies, especially in the areas of education; adaptation of firms and workers to the fourth industrial revolution; increase of defence budget which itself could boost research and development in the civilian sector.

Germany of course does not bear the entire responsibility for the boost of the European economy alone.

The other member states and institutions must contribute according to their abilities too. The European Central Bank should, to the extent possible, continue with its program of quantitative easing, although that choice is very unpopular in Germany.

The European Commission is planning a €100bn wealth fund to bolster European tech champions against American and Chinese rivals.

On their part, member states with high deficits or public debts, like Italy, should apply greater fiscal restraint. The "surplus member states", like Germany, should strike a deal with Italy and the likes by offering higher investments as a compensation for the necessary reforms and the austerity that needs to be temporarily applied there.

Solidarity in exchange for responsibility is the golden formula for the many diverse European nations to move on together.

Politicians should further have the courage to defend such decisions in public and explain why a finance policy for a common market must take different and sometimes contradictory conditions and interests into account.

We believe that the fiscal stimulus that we propose is both necessary and affordable for Germany. It should accept slightly higher debts and inflation, or lower surpluses and savings, in return for higher growth.

The benefits would be multiple: support of the European economy in times of high uncertainty and a global financial slowdown; a strong signal that we stand united in the face of Brexit, trade wars and any other threats; political help for the new leaderships of the EU institutions; and a renewed commitment for a joint vision in Europe.

Author bio

Yannis Karamitsios, Peter Willisch and Maia Mazurkiewicz are the co-founders of Alliance 4 Europe, a civic organisation established in 2018 campaigning for European unity and values. The views expressed by the authors in this text and strictly personal and do not represent their employers.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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