Deficit Dogma

Economics Debate Must Move Beyond Doctrines

  • Why it matters

    Why it matters

    Germany has for years not invested enough in maintaining its roads, bridges and other infrastructure.

  • Facts


    • The recent G20 summit in Cairns again revealed the rift between Germany and France on economic policies.
    • France has said it would not meet European Union deficit goals until 2017.
    • A balanced-budget regulation is part of Germany’s Basic Law.
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Politicians can’t seem to stop talking about how best to promote economic growth. And the question of how we return to prosperity after the world financial crisis is definitely worth serious debate.

But it is disappointing that governments of the world’s leading democracies hide behind their favored doctrines, and frame the arguments of others in terms of those doctrines. That is what is  happening now in the dialogue between Germany and France, and between Germany and the United States.

This became clear at the recent G20 summit in Cairns, where arguments over supply-and-demand policies collided once again, as if old ideologies from the 1970s and 1980s still held true.

Whenever France’s finance minister, Michel Sapin, demands measures to combat weak growth, his German colleague, Wolfgang Schäuble, hears only one thing: France doesn’t want to adopt austerity measures. When Mr. Schäuble calls for reforms in spending on labor and social welfare programs, Mr. Sapin fears it is an attack on French identity.

Mr. Schäuble in particular seems stuck on one idea, that savings are good, and deficits are bad. The balanced budget is, for him, an end in itself. Of course, Mr. Schäuble has to pursue the balanced-budget principles enshrined in Germany’s constitution. But he doesn’t have to take the concept to extremes.

It may well be a good idea to achieve a debt-free budget in 2015, just to show that it’s possible. But in the following years, the finance minister should not deprive himself of discretionary maneuvering space that is permitted within balanced-budget regulation. He is allowed to access credits within certain limits. And in Germany – which for years has not invested enough in roads, bridges and other infrastructure – a comprehensive rebuilding program might be better for long-lasting growth than a an obsessive focus on a zero deficit economy at all costs. In any case, spending on the future would help Germany to modernize further.

Of course from the other side, there must be a recognition that Germany alone can’t save the world from weak growth simply by investing a few extra billion euros. And France, which has said it won’t meet deficit goals until 2017, might actually build investor confidence if it finally put promised spending reforms into practice.

Donata Riedel is a finance correspondent at Handelsblatt. To contact the author:

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