Last month Finance Minister Wolfgang Schäuble spoke with Handelsblatt editor in chief Gabor Steingart at the publication’s Deutschland Dinner in Berlin. The audience also submitted questions, but not all were answered by the end of the evening. Mr. Schäuble promised his ministry would respond – and here are his answers.
When will investments be made in German infrastructure, hospitals, schools and public services? The government’s coffers are brimming.
In recent years, we have significantly expanded investments in the federal budget, including a €10 billion package for added spending in transportation infrastructure, broadband expansion, urban development and energy transition from 2016 to 2018. Financially weak municipalities are getting €3.5 billion for new investments through a special fund.
We don’t primarily have a financial problem, but instead with planning and authorization. Local agencies access additional financial resources quite slowly, because their capacities for planning new investments are insufficient. It is here, above all, that improvements must be made.
The stress report issued by the finance ministry demonstrates clearly that future burdens on public budgets, for example through high state commitments in the area of social insurance, can only be met if the debt level doesn’t rise any more.
Without the financial crisis and low interest rates for state debts, it would not be possible for the federal government to stay in the black. Isn’t this shifting the burden from the state (taxpayers) onto savers?
Low interest rates have undoubtedly helped to consolidate the federal budget. But their impact should not be overestimated. In 2010, net borrowing by the federal government amounted to some €44 billion ($49 billion). In 2014, the federal budget was able for the first time since 1969 to avoid incurring new debt. Interest payments were around €33 billion in 2010 and around €26 billion in 2014. The €44 billion decline in net borrowing was accompanied by a €7 billion drop in interest payments.
This consolidation is due primarily to the federal government’s self-restrained fiscal policy and to increased tax revenues due to the positive employment situation. The government expects low interest rates to be only a temporary phenomenon. We are keeping an eye on the negative impact.
Why does the Public Private Partnership still exist? Wouldn’t it be less expensive for the state to build projects itself?
The PPP is concerned with realizing new potential for improving the cost effectiveness of public procurements and improving the economic feasibility of government activity overall. As a rule, an examination takes place in Germany as to whether the PPP constitutes a feasible option for fulfilling economic demand. For this purpose, the cost effectiveness of an investment is investigated over its entire life cycle. A procurement in the form of the PPP is only realized when, after these examinations have been made, it proves to be the most cost-effective option.
Why does the federal government want to remain in the black? State debts are never paid back but only prolonged.
The so-called “black zero” is an expression of reliable fiscal policy by the federal government. Refraining from incurring new debt causes a continuous decline in Germany’s debt level in relation to gross domestic product and improvements in the long-term viability of public budgets.
In view of demographic developments in Germany, this is necessary. It strengthens the ability of the state to react to unforeseen crises. The stress report issued by the finance ministry demonstrates clearly that future burdens on public budgets, for example through high state commitments in the area of social insurance, can only be met if the debt level doesn’t rise any more. It currently is 70 percent of GDP and should decline to 60 percent in coming years. This would mean that the Maastricht reference value of the [E.U.] Stability Pact has once again been reached.
Can we accept that, up to now, our financial assistance hasn’t reached the Greek people but has only helped loan-issuing banks? Wouldn’t it make more sense to require those institutions to share in the costs?
First, private creditors are already sharing in the costs. In 2012 with the so-called Private Sector Participation, they renounced a considerable part of their claims. This “haircut” for private creditors was unprecedented in the euro zone.
Second, it’s not true that the Greek people have not benefited from aid efforts. Without support from euro-zone members, Greece would have had to balance its state budget in 2010 all at once. This would have led to dramatic upheavals – especially for the Greeks themselves. Preventing a disorderly insolvency of the Greek government was accordingly a crucial goal of our relief efforts.
How can things improve in the Greek economy when most sales in shops on Rhodes, Crete, Piraeus and Corfu come without sales slips, thus avoiding government taxes?
Improved tax collection is part of the adaptation program. The plan is to mount a more effective fight against tax evasion. Moreover, electronic payment transactions are to be promoted as a way to strengthen proper bookkeeping.
How can you guarantee that the Greek people will benefit from our assistance, but still realize that they themselves must commit to achieving equilibrium?
The idea behind the assistance to Greece is solidarity in return for solidity. The euro zone is issuing loans to Greece and simultaneously expects that Greece will consolidate its public budget and carry out reforms to enhance competitiveness and promote economic growth. The goal is for Greece to stand on its own two feet again. In spite of the resistance to specific reforms, all in all this logic has been understood.
How many billions in tax money has the Greek financial crisis already cost?
We have always made sure that assistance to Greece is granted chiefly in the form of loans. The terms are favorable, over a long time at low rates of interest. At the same time, Greece must carry out reforms to put state finances on a firm footing over the long run and thereby guarantee repayment of the loans.
Why must the International Monetary Fund be part of the assistance program for Greece? Do European partners lack trust or does Germany lack competence to get the job done?
In 2010 during the first aid program for Greece, the main argument in favor of participation by the IMF was its widespread experience with programs of macroeconomic adaptation. In the meantime, Europe has built up capabilities and institutions, such as the European Stability Mechanism. Nevertheless, it remains important to euro countries that the IMF be included, with its expertise and view “from outside.” In May, the IMF agreed that its board would consider playing an active role in the third assistance program for Greece.
What is Greece doing to improve its competitiveness?
Greece has already achieved significant improvement in its competitiveness. For example, its nominal unit labor costs – an important indicator of how competitive prices are in an economy – have declined 12 percent since 2010. But it’s still true that Greece must implement further reforms.
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