MNI: SPD Seen Skirting Germany's Debt Brake After Election

Germany's Social Democrats could bypass promises to abide by strict public borrowing rules in order to fund the transition to an environmentally-friendly economy and secure a coalition with the Greens if they win elections later this month, sources close to the centre-left SPD told MNI.

Matthias Machnig, a former state secretary for the economy and energy, cited recent remarks by Markus Soeder, leader of the right-leaning CSU, suggesting green spending could be legally separated from the debt brake. Machnig, a veteran of two coalition governments, sees this as a potential landing ground for coalition discussions between the Christian Democrats, the SPD and the Greens, or a 'traffic light' government composed of the SPD, the Greens and the free-market Free Democrats (FDP).

A deal on spending will be key for any coalition deal with the Greens, who could face a party split if they fail to deliver something close to the EUR500 billion in green investment promised in their election campaign, he explained.

STAKES IN COMPANIES

.An SPD-led government might also take direct stakes in some companies, while cutting back on bureaucracy as the economy becomes greener and more digital, said Machnig, now vice president of the SPD Wirtschaftsforum, an independent economic advisory council with ideological ties to the party.

"We need a different and intelligent regulation," Machnig said. "In Germany, if you want to build a new windmill it takes 60 months. I'm in favour of deregulation on this: you need something similar to what we did here in Berlin with the Tesla factory, giving approval in a couple of months."

At the same time, new regulation and an enhanced state role will be essential to encourage a shift to new products such as green steel, which are more expensive than their dirtier equivalents, he said.

SPD candidate Olaf Scholz, now favourite to succeed Chancellor Angela Merkel following a poll surge, has stated publicly that while Germany should maintain an expansive fiscal position post-Covid, it should retain constitutional debt brake limits on public borrowing as well as its traditional "Black Zero" commitment to balanced budgets. But a paradigm shift in public opinion and within political parties toward greater fiscal flexibility is occurring, said Florian Moritz, head of economics, financial and tax policy at Germany's largest non-aligned trades union confederation, the DGB.

"We want strong instruments, new instruments, we want the state to come into companies if necessary. I think [the main parties] would also agree that you can't leave the market alone with the change process," Moritz told MNI.

"Germany's infrastructure is almost rotten thanks to a lack of investment over decades," he said. "No party, I think, would deny we have high public investment needs, but of course when it comes to financing there are different proposals."

UNION WAGE DEMANDS

A senior SPD government official, though, said the debt brake must be respected.

"If and when the economy returns back to normal, we can also return fiscal policy back to normal and recreate the fiscal space that we'll need when the next crisis hits," the official told MNI. "We have a very clear constitutional framework on this topic."

In Soeder's remarks earlier in August, though, the leader of the Christian Democrats' Bavarian sister-party, the CSU, was careful to suggest only that climate-related spending should be considered apart from the constitutionally-mandated debt brake, which he did not question in itself.

Moritz also expressed optimism that unions' collective bargaining power could advance under the next government, powering wage increases, although he said this should not cause more durable German inflation, which is already nearing 4% and is set to close in on 5% by year's end. The SPD official said authorities should be "very watchful" in case wage demands, as well as rent for housing, feed further inflation.

"The inflation rate is going up now, but that's for very specific [temporary] reasons, "Moritz said, "But I don't see exorbitant inflation in the mid-term, or a wage-inflation spiral in Germany."