The draft budget for 2021 provides for EUR 160 billion of new debt. Every third euro spent by the federal government is thus debt-financed. What, just a year ago, would have driven politics and the media to a storm of indignation is now – fortunately – not seriously questioned. In the crisis, the state must take money into its hands. Right. And this seems to be a consensus by now. However, the question of who should repay this debt, when and how, has been completely sidelined. The left dreams of a wealth levy, the FDP and CDU dreams of an even leaner state. But the question is actually wrong anyway. More interesting than the question of who should repay the “Corona debt” is whether these debts should be repaid at all.
39.5 billion euros in bridging aid for small and medium-sized enterprises, EUR 2.7 billion for the vaccine, EUR 2.5 billion for FFP2 masks, EUR 400 million for default guarantees for the banks and EUR 200 million for bridging aid for professional sport – no question, the cost of the Federal Corona measures is rattling and the new debt of EUR 160 billion now planned for the coming financial year will certainly not be the end of the flagpole. For the two lockdown months of November and December alone, the federal government currently calculates 30 billion euros only for the subsidies of the industries damaged by the lockdown. A continuation of the lockdown until May would only increase this item by a further EUR 60 billion, and we are not even talking about the expected reductions in the tax bag. It’s going to be expensive. Very expensive.
Judging by the circulating numbers, the lack of excitement among the usual suspects is surprising. As a matter of course, ideologies that were defended with ideological zeal to the blood only a few months ago play virtually no role in the political and media debate today. Who is still talking about the Black Zero today? Who of the debt brake? And there is no rational reason to panic. Interest rates on government bonds are negative, so the federal government gets money to borrow money. And, with 71% of euro government bonds currently held indirectly by the ECB, and any new issuance ending up with the ECB in large parts anyway, there is no reasonable reason to believe that this could change in the medium to long term; at least not as long as policymakers do not explicitly want to do so and impose stricter rules on the ECB.
Thought in traditional categories, the first question here is how the state wants to repay these new debts. But it is not really as dramatic as this question sounds. According to the EU Commission’s forecasts that are no longer up-to-date, German public debt will rise from 59.6% to 71.2% this year. With the latest budgetary changes, however, a government debt ratio of 75% is more likely for 2021, especially as it is still unclear how much the gross domestic product, on which the government debt ratio is oriented, is falling. 75%? That’s right, that’s the value that Germany reported in 2014. Seven years of fiscal consolidation would be for katz. That is not nice, but it is not a disaster either. All comparable industrialized nations have much higher government debt ratios.
Therefore, if the Left Party is now proposing a wealth levy to compensate for the “corona debt”, this is not absolutely necessary in order to cope with the financial burden of the crisis. Rather, the concept should be seen as a proactive response to the expected reduction that the other parties are almost certain to demand once the crisis is history and the economic data go up again. For one thing should be clear: the black zero ideologues will not see the issues of new debt and fiscal consolidation forever. The Chancellor made it clear a few days ago that the financial aid could not be paid “until ultimo”. At least on this point, Merkel seems to want to quickly return to the “normality” of the Swabian housewife. If one wants to interpret it a little maliciously, one could even conclude that a reset of seven years of austerity policy is not even uncommon for the supporters of this policy, since new potentials for cuts and privatizations are now emerging.
However, if we continue to debate the national debt, we will be asked fundamental questions. Why do government debts have to be repaid in the first place? In the past, such a question was blasphemous, since a write-off of the debt would have been tantamount to expropriating creditors, which would have had a catastrophic effect on interest rates. But if the ECB already holds 71% of government bonds, it would be possible to simply cancel them, all or part of it, even without distortions in the financial markets. This is exactly what a group of MEPs around the French economist and politician Aurore Lalucq called for in September. Unfortunately, your reputation will remain unheard of.
Is it even possible to cut the government debt held by the ECB? Economically definitely. In this case, the ECB would have to offset the write-downs on its balance sheet with special items. For a central bank, such a thing is possible without problems and was even practiced by the Bundesbank in 1973, when the value of foreign reserves had to be massively devalued. Since the money is already circulating, the risk of an inflationary effect must also be de facto excluded. In fact, apart from a few figures on the balance sheet of the ECB and the nation states, nothing would change at all. The states, however, would have restored their fiscal and monetary sovereignty and, above all, the maneuvering space to actively address current and future problems. But that would also break the power of financial markets and politicians who put pressure on their own parliaments and other countries' governments through the lever of fiscal policy. And this lever is exercised above all by Germany, which dominates other EU states over the ideology of black zero and austerity policies and dictates its rules to them. Therefore, it is also inconceivable that the Federal Government should give its approval to such ideas, however well-founded.
The ECB, by the way, does not believe in a debt cut either. In this context, Christine Lagarde refers – not unjustifiably – to the EU treaties, which explicitly prohibit the ECB from financing the state. Although this passage has already been violated by the bond-buying programme, cancelling the debt at the ECB’s “costs” would probably leave even less room for interpretation. Contracts could, of course, be amended; only the political will is lacking, especially in Germany.
So, realistically, we do not have to deal with the “why” but with the “by whom”. Who pays back the debt? As sympathetic as the ideas of a wealth levy may be, they are unrealistic. In the end, it will probably amount more to what Naomi Klein described in her outstanding book “The Shock Strategy”. After the crisis, the public debt, inflated by the “corona debt”, will be the “justification” for saving even more for the small and the middle class, to streamline the state even further and to accommodate the wealthy and the international corporations even further. The social imbalance will be exacerbated and the opportunities will be distributed even more unequally. After the crisis is before the crisis. And Corona will be just a footnote of history.