MNI INTERVIEW: Germany's FDP To Push For Tough EU Debt Rules

Germany's Free Democrats will ensure debt brake restrictions on public borrowing remain in place if they enter into government following September's general election, a senior party figure told MNI, while pushing for the retention of tough EU debt rules and strongly backing German judges in their dispute with Europe's top court over central bank asset purchases.

With the FDP polling steady fourth ahead of the next month's vote, the most likely outcome is a so-called 'Jamaica' coalition in which party joins forces with the centre-right CDU/CSU and the Greens, Bundestag member Florian Toncar said in an interview, stressing though that much could change.

Last in government in 2013, the FDP would target the Finance Ministry and push for the creation of a new ministry for digitalisation, Toncar continued, but "definitely won't participate in a government which raises taxes, and there can be no loosening of the so-called debt brake." Germany's fiscal stance going into the Covid-19 pandemic was the "correct" one to safeguard its finances against future crises, he said.

"I'm very convinced that in five years or 10 years' time we will face other and maybe comparative challenges as Corona," said Toncar, a member of the Bundestag's Finance Committee and both the FDP's parliamentary manager and its spokesman on financial issues. "We have to come back to a normal, stable fiscal policy, also as preparation for any upcoming crisis."

Open markets are no longer something to be taken for granted, and Europe will need to reflect on its reliance for crucial goods on global production, even if the result is higher prices, he said. "I'm not at all promoting renationalisation of production or deglobalisation, but we need to discuss what stocks of crucial goods we want to store in our country, and what cost is appropriate to prepare for future crises."

RETURN TO EU DEBT LIMITS

Toncar's party will also push for the European Union's Stability and Growth Pact, which limited budget deficits and debt no more than 3% and 60% of GDP respectively before its suspension at the outset of the crisis, to be reimposed at its pre-Covid level, adding that "the reality over the last 10 years has been that flexibility is the rule and adherence to the criteria the exception. (See MNI INTERVIEW:Eurozone Debt Reform Essential, But Treaty Stays)

"What I would not support is a path towards more and more excessive debt that will in the end be purchased by the central bank," he continued. "Just lowering the standards or allowing for more expansive fiscal or monetary policy would only provoke a fatal spiral which ends in a high degree of instability and once again turning to the ECB."

A spike in German inflation, expected to hit 3.8% in July 2021, is shaping up as a key test of how seriously the ECB takes its new symmetrical 2% inflation target, Toncar said, with many of the factors currently driving upwards price pressures potentially remaining and sending inflation even higher in the coming years. But interest rate rises should be conducted step-by-step and cautiously, he said.

The ECB is not even trying to disguise its funding of government borrowing, he said.

"It is all rather a form of masquerades. The key goal of the monetary policy is to avoid state insolvencies by buying their sovereign debt, and this must really be stopped now."

CONSTITUTIONAL COURT

Toncar resolutely backed Germany's Federal Constitutional Court (BverfG) in its ongoing conflict with the European Court of Justice, a case which has called into question both the existing power balance between national and supranational institutions, and, by extension, the strength of the future relationship between the EU and member states themselves.

The dispute arose after justices in Karlsruhe ruled the ECB had not sufficiently demonstrated the proportionality of its Public Sector Purchase Programme (PSPP). The BverfG accused the ECJ of acting ultra vires - beyond its jurisdiction - prompting the European Commission to open proceedings against Germany for violating fundamental principles of EU law.

Further escalation on the part of the Commission via the infringement procedure can only result in a further ruling by the BverfG that this too is ultra vires, Toncar said.

"Then the ECJ will say this is the next violation of the treaty by Germany by the Constitutional Court, which is also acting ultra vires, and the situation escalates. It's not a resolvable conflict."

Nobody in Germany disputes ECB independence in matters of monetary policy, he stressed.

"But this high degree of power within a mandate requires a high and qualitative level of control, and that the limits of the mandate are observed. Transferring the power to an institution to define themselves or itself what is monetary policy, and to do that without any control, effectively, then act within this self-defined scope completely independently, is not a situation which a democratic country can accept."