Germany is not isolated at all

Christian Lindner Economy
dpa und Co.

Lesedauer: 14 Minuten

On the reform of the EU Stability Pact, does Germany remain firm on its request for a 1% annual debt reduction for countries beyond the budgetary constraints or is there a room for negotiations?

Christian Lindner: We all benefit from the single market and most member states also from the monetary union, but these benefits are not guaranteed for all time. We have to work constantly for them. Sound public finances are a precondition for a competitive single market and a stable monetary union.

This is why Germany is advocating for ambitious efforts to reform the Stability and Growth Pact. Higher debt ratios and higher annual deficits are likely to weaken the single market and the Euro in the future.

Having said this, the proposal by the European Commission ist not yet the landing zone and it has to be improved, because so far it is not guaranteed that we will see declining debt and deficit levels in a realistic and reliable manner. Therefore, Germany has tabled technical proposals to introduce a numerical quanitative benchmark on the one hand and a common safeguard.

Regarding the common safeguard, we need a guarantee that there will be a minimum level of debt reduction per year and 1% is not overly ambitious in normal times. But we are of course open to the idea of a general escape clause for exceptional circumstances.

Concerning the Stability and Growth Pact: What is the status, have you already been able to hold further talks/find allies? How isolated is Germany?

Christian Lindner: Germany is not isolated at all. There are many member states that share our concerns and there are other member states which have different concerns. So, there is a need for further negotiation. I am convinced that we will reach an agreement. Germany has entered the discussion constructively in the last year. I allow myself to remind you of our proposal to get rid of the 1/20 rule. Germany went quite a way. Now we we have to make bold decisions on the fiscal rules. This means that we reform the Stability and Growth Pact so that we have a better tool in place to be able to reduce debt and deficit levels in a realistic and reliable way. Germany is not isolated in this. Others might be less vocal but there are many member states who share our views on the importance of maintaining the stability and credibility of the fiscal rules.

Can you tell us who they are? The many member states?

Christian Lindner: I am not the spokesperson of other colleagues in the council. But please remember, when it came to the council conclusions on the economic governance review, we had a very frank debate and Germany was not alone with its concerns. Otherwise, it wouldn't have been possible to change the council conclusions.

My question is also regarding the Growth and Stability Pact. Is it still realistic that there can be an agreement by the end of this year given that Germany asks for this 1% GDP adjustment And given that you just said that you were not isolated on this. So I know you. How realistic is it to have disagreement under the Spanish presidency this year?

Christian Lindner: The Spanish presidency will lead us all under very specific domestic circumstances. But I am convinced that Nadja Calviño will make efforts to find a consensus among member states. And as I pointed out, Germany has a very clear idea of what we need to maintain and guarantee the stabIlity of the Euro as well as the integrity of the monetary union and the competitiveness of the single market. We all benefit from this. Instead of making it easier to increase public debt, we should put all our efforts into turning into a path towards sustainable public finances.

So having said this, it's difficult to reach a consensus, but if someone is capable of bringing us all together, then it is Nadja Calviño. She has our support, and we will stay constructive in the whole process. This is why we are constantly tabling proposals, at a strategic level last year, now on the technical level.

Let me add that Germany has a very special coalition. There is the Liberal Party, my party, which is a more market economy-oriented party, advocating for stability. On the other end, two left wing parties. If we in Germany are capable of finding a consensus, then our proposals should be acceptable for a wider range of member states.

I've got to follow up question on my colleagues. Do you think it's still feasible to reach an agreement this year before the end of 2023? You have advocated in the past that if that was not possible, we should go back to the old rules, to the current rules actually. Do you think that would be good for the economy at this moment, given that it would trigger a lot of adjustment requirements for many member states, given the current economic circumstances?

Christian Lindner: We have a common law, the Stability and Growth Pact and the fiscal rules, the fiscal compact. All these sources of legal advice are not abolished. They are still the fundament of the European Union and the monetary union especially. So should we go back, we have a legal fundament. We have an existing Stability and Growth Pact, which we would have to accept and respect until we have new rules in place.

Germany is standing ready to go deeper into the technical details in the negotiations. I'm keen to discuss the room for improvement in the commission proposal and to address concerns when it comes to our ideas. I know there are some colleagues who believe that our common safeguard could be too pro-cyclical. To meet these concerns we are open to the idea of a general escape clause for exceptional circumstances.

So yes, it is possible to reach consensus this year. Germany is standing ready to make efforts towards this goal.

My question is, there are some countries like Italy or Greece, they're afraid that the faster reduction of their debt could jeopardize their growth. What is your answer to those concerns?

Christian Lindner: I do not believe that a 1% minimum reduction of public debt per year is not overambitious. How long would it take to return to the 60% rule by our common safeguard? Not in my lifespan. So, I think it's not overambitious.

Do you expect some tension between the European Commission and individual member states or between member States themselves, given the ongoing energy and inflationary crisis? Thus, the need for government support and calls for tightening of the fiscal discipline?

Christian Lindner: I do not see and I do not expect tensions. All my colleagues are strongly committed to fight inflation. This requires a change in our fiscal policies. The expansion of our expenditures during the pandemic and the energy price crisis after the Russian attack on Ukraine has to end. The most serious threat for our economic development at the moment is inflation. Of course, there is a need for green and digital public and private sector investments across the European Union. I assure you we see these investment needs. This is why we want to make progress towards a capital markets union, for example. But the priority at the moment has to be fighting inflation, and I see the commission and member states agreeing on this.

Referring to a question in the chat from BTA.

Christian Lindner: Which proposals do you hope will be adopted? (reads question from chat). As I said, we propose common numerical benchmarks. We want to achieve that spending increases more slowly than potential growth. The second is to have a common safeguard in place. We have already discussed this.

You just said that it wouldn't be an economic catastrophe if the agreements wouldn't be reached by the end of this year. But, would that be some sort of - let's call it political failure - since the aim of the XX countries was to get this agreement by the end of 2023?

Christian Lindner: This is a very serious topic which is connected to the economic well-being of millions and millions of European citizens. We have to maintain a high level of public sector investments on the one hand. On the other hand, there is no realistic alternative to reducing deficits and debt ratios.

Too high public debt would harm our economic development and the reliability of the euro as our common currency. So, we have to change the fiscal rules in a way that adjustments are possible in a more realistic way than it has been in the past. And on the other hand, there has to be a way towards sound public finances. This is a very serious and very complex task - politically, technically, economically, legally.

We have to be fast, but finding the best and most sustainable solution is more important for me than having the fastest solution. Germany wants to reach consensus this year and we are standing ready to negotiate through nights and days and weekends and holidays, if necessary. We can come together to some kind of a conclave, extra omnes, like in the Vatican to find consensus. We do everything of what is possible to allow a consensus this year. But it has to be the best solution and not the fastest.

Spain has a presidency, but as we mentioned that there are snap elections and it's possible that the government changes and it is not Prime Minister Calvino who is making the negotiations. It's possible that the far-right party Vox comes into the new government. I would like to know what your take on that is. Would it be something of concern for Germany and how do you think this could affect the negotiation of economic and financial dossiers here in Brussels?

Christian Lindner: I can't comment on these domestic political issues just before a national election.

My question is about Greece. The Greek economy is growing at one of the fastest rates in Europe. A year ago, it successfully emerged from the enhanced surveillance framework. Do you think it is possible and well-deserved for the Greek economy to reach the investment grade rating that it has long been waiting for in 2023?

Christian Lindner: I can assure you that I really appreciate the efforts which have been made in Greece. We supported the Greek government over the last years. We changed some bilateral agreements to allow Greece to faster improve the economic situation. But I can't comment on the decisions which have to be made by the rating agencies. But the economic development in Greece is highly appreciated by the German government and we encourage the Greek government and others to continue like this.

I have a question about the Inflation Reduction Act. Like the Austrian Finance Minister Brunner, you warn of a global funding competition that could be triggered by the American Inflation Redution Act. Doesn't Europe's economy need all the support it can get in these difficult times? Berlin has distributed a lot of money with the "Doppelwumms” aid package?

Christian Lindner: If we compare the United States and the European Union, there is no lack of public subsidies and state aid in Europe. Just take a look at Next Generation EU with over 800 billion euro and the Inflation Reduction Act with about 370 billion dollars on the other hand. So, the problem is not the subsidy situation.

I think we are less competitive than the U.S. because of our capital markets. We have to avoid a subsidy race with the United States. Instead, we have to make further progress with the capital market union to mobilize more private sector funding for our transitional investment needs. I think the public sector investments are quite impressive even compared to the United States, given that our single market is smaller than the U.S. market.

Our state aid framework has to be more effective, more agile. We have to be faster to find allowances for projects which we want to fund with public sector money. But there is no need to raise more public funding, we have to use existing funds in a better way.

Coming to Germany, this "Doppelwumms" should not be compared with the Inflation Reduction Act. Firstly, we finance our price breaks for electricity, natural gas and some hardship cases out of this protective shield. Secondly, we won't use all of the 200 billion Euro. My expectation is that much less than half of the budget will be needed until April 2024.

Another question on the budget and the multi-annual framework. It is foreseeable that there won't be enough money if only because of Ukraine. If the budget cannot be reopened where will the missing money come from?

Christian Lindner It is to be expected that the Commission will ask for additional means in the course of the mid-term review. But there is a tense budget situation in Germany, and other member states have their challenges as well. At the moment, in view of the necessary cuts in our national budget, we cannot subscribe to additional contributions to the European Union's budget. Here we see ourselves again in line with a number of member states of the European Union. Therefore, in the review, we need a clear set of priorities that focuses on the unavoidable additional financing needs arising, for example, from legal obligations of the EU.

Before increasing the contributions of the member states, the additional financial needs should be covered by reallocations or by using existing flexibilities in the European Union's budget for unforeseen events. Having said this, of course, we don't see a need to introduce new own resources or additional funding. The position of the German government has not changed on this.

My question is connected to the question of my colleague. I would like to ask whether the high interest rate in Europe is an obstacle to future advance under the Next Generation EU plan. How do see a solution this problem? Second question, do you think that, taking into account the new challenges in European Union such as Ukraine and the macrofinancial assistance, that there is a need for a new program, as Next Generation EU and to borrow more money from the markets?

Christian Lindner: High inflation rates are an obstacle for our national budgets and for the European Union's financial instruments. This is why we have the responsibility to reduce inflation as fast as possible. If we counteract monetary policy by our fiscal policies with higher expenditures, for example, then the process of fighting inflation would last longer and would harm our economies more deeply.

There is tension in the European financial instruments because of the higher interest rates and the higher spreads of European Union's bonds. This is why I think we don't need further common European bonds, because the competitive advantage between European bonds, common bonds and national bonds is in decline. It's only interesting for a smaller number of member states because they can issue bonds under better conditions already. And no, I don't think we need further financial instruments in the way or in continuity of Next Generation EU.

The capability to absorb the common funding from the Next Generation EU program is limited in certain member states and so I don’t think we need something more. The reconstruction of Ukraine in the hopefully foreseeable future is something different, but this is a separate debate. We need international financial institutions like the IMF on board, the multilateral development banks, and we need G-7. We need the European Union, we need the private sector and Ukraine’s own resources to build a platform for the reconstruction. But I think it's too early to make final decisions on this.

Italy has not ratified the ESM reform yet. What is your opinion on that? Are you afraid that there will be problems in case of a bank crisis? And there wont be the backstoppers for the ESM when needed?

Christian Lindner: The banking sector in Europe is stable. We don't see a systemic crisis. But referring to the ESM, the new managing director of the ESM, Pierre Gramegna, is constantly talking to all member states. He will present his findings and ideas on the further development of the ESM and what could be the character of the ESM. I expect the Italian government to ratify the treaty in a quite short period of time after we have exchanged views on the future developments of the next years. I think there are some questions which have been risen by the Italian government, and Pierre Gramegna will undoubtfully be able to answer them all. I am convinced that we will find common ground.

The European Commission recognizes that beyond strengthening the green and digital transition, there is a great need to strengthen Europe's security capacity. In the discussion on the reform of the Stability and Growth Pact, do you see the possibility of agreeing on a special handling of defense spending? Do you think that this step is necessary and possible as long as the Russian aggression in Ukraine continues? Greece, for example, has requested a total or partial exemption of defense spending from the calculation of the deficit. What is your opinion?

Christian Lindner: Certainly, we have to improve our security capabilities in Europe. The geopolitical situation has changed completely. You probably know that Germany is now enforcing its Bundeswehr again. Having said this, I'm not yet convinced that we need exemptions from the fiscal rules for defense spending.
Why am I so skeptical?  Simply because capital markets do not distinguish between the motives for making debt. For capital markets, debt is debt and too high debt leads to instability. It is potentially fueling inflation and reduces the sustainability of our public finances.