Budget '25: the battle of the editorials
Tuesday 25th June
Good morning.
I’ve come across two interesting editorial pieces this morning, both opining on the coalition’s wrangling over the budget (too early to call it a ‘crisis’?): one from Berthold Kohler, editor of the liberal-conservative Frankfurter Allgemeine Zeitung (FAZ), and another from Christian Rickens, who writes the morning briefing for Handelsblatt, the German-language equivalent of the FT.1
Each sets out their views on the exempting certain areas of government spending, like defence (including aid to Ukraine) and investment in infrastructure, from the constitutional ‘debt brake’ which limits public borrowing to 0.35% of GDP. You wouldn’t expect there to be much daylight between the two papers, but on this occasion, you’d be wrong.
FAZ’s editor offers a largely predictable view. The left of the SPD is attempting to force Olaf Scholz into a show of strength and ‘defend the welfare state’, and reject the FDP’s insistence on the debt brake and spending cuts. To Kohler, these are signs that
The SPD, which has always found it easy to govern on credit, believes it can simply continue to do so - not to say it has to. Ever since the disastrous result in the European elections, the Social Democrats have feared for their very existence. In order not to lose any more core voters before the elections in the autumn, the party is now calling for the debt brake to be released across all wings. […] In its hour of distress, the party is clinging to old but misguided illusions. In doing so, the SPD is not only harming itself, but also the country.
Handelsblatt’s Christian Rickens, however, somewhat self-consciously, takes a more nuanced view: limited exemptions to the debt brake are justified, especially to support Ukraine. He tells his readers:
The days on which Saskia Esken receives approval for one of her statements in the Handelsblatt can probably be marked in the SPD chairwoman's diary. Today is the day. The war against Ukraine is an emergency situation that justifies an exception to the debt brake, said Esken yesterday.
[…]
She's right about that. I consider the debt brake to be a virtue and would very much welcome it if the ‘traffic light’ manage to agree on a constitutionally compliant budget for 2025 without pulling the exception rule again. However, if this were to happen, I believe that support for Ukraine is currently the only reason why this would be constitutionally permissible. The debt brake article 109 in the Basic Law allows higher debt “for natural disasters or extraordinary emergencies that are beyond the control of the state and significantly affect the state's financial position”.
To me, this represents quite a big change in thinking in one of Germany’s traditional free-market ‘ordoliberal’ papers, and one which the SPD (and the Greens) will welcome. Once the idea that there are existential threats to national security which require exceptional levels of spending has been accepted on one thing (Ukraine), it becomes easier to make the case on other issues, too.
And this is exactly what the SPD are saying. Today’s ‘Platz der Republik’, a morning newsletter from the Süddeutsche Zeitung (altogether more favourable to the SPD) quotes Sebastian Hartmann, a former Chair of the SPD in North Rhine-Westphalia, Germany’s most populous state. He says that:
"If the SPD can do one thing, it is to shape phases of structural change and upheaval. And in such a way that society does not break apart. […] We are now facing such a task. […] We have to ask ourselves the question: Are we under existential threat? I say yes, from both outside and inside. We have to take this into account. And not by dogmatically adhering to the debt brake."
Of course, the FAZ’s Kohler is right to say that all of this talk — existential threats, structural change and upheaval, great tasks that require new thinking — is extremely cheap when your party faces a wipeout with its current standing in the polls. But the point remains: if more and more Germans begin to feel unsafe, including those who really value and believe in the fiscal orthodoxy of recent decades, then Keynes’ old mantra of “anything we can do, we can afford’ may become the watchword in Germany.
Apologies for the long quotes today, but I thought it was important to give a full sense of each author’s views.