CDU considering 'debt brake' reform, SZ reveals +++ Chinese ambassador summoned over cyberattack on Berlin
Thursday 1st August
Good morning.
The front pages remain dominated by the deteriorating situation in the Middle East, with many reporting on Iran’s promise of ‘revenge’ for the killing of Hamas leader Ismail Haniyeh in Tehran.
But there are interesting developments elsewhere too, including on the ‘debt brake’ and tensions over Chinese cyber-attacks against German infrastructure.
Süddeutsche: ‘Debt brake reform? The CDU is moving’
The SZ reports on the CDU’s changing position in recent weeks on the so-called ‘debt brake’, a development which raises the prospect of significant changes in Germany’s relationship with public debt in the next Bundestag.
The Greens and SPD, as well as many commentators, including even the pro-business paper Handelsblatt, have chafed at the current form of the rule, which has set strict constitutional limits on government borrowing (no more than 0.35% of GDP) since its introduction in the wake of the 2008 financial crisis. Against this pressure, however, the liberal Free Democrats (FDP), have fought hard to resist change as part of Germany’s governing coalition. The CDU have so far been much closer to the FDP line than the SPD/Greens, brushing off any talk of reform, but the SZ’s Claus Hulverscheidt reveals that serious discussions are being had within the party.
Hulverscheidt suggests that state-level officials, especially CDU ‘Minister-Presidents’ of various federal states, are pushing party leader Friedrich Merz particularly hard on the issue. This is because state governments are subject to even more restrictive borrowing rules than the Federal Government, with a categorical ban in place on ‘new state borrowing’.
This state-level effort is said to be centred around Kai Wegner (above), the governing Mayor of the “chronically cash-strapped city-state” of Berlin, as well as the elected heads of the regional governments in Sachsen-Anhalt, Sachsen, Schleswig-Holstein and Hessen.
Wegner’s recent interview with Handelsblatt, in which he argues for major reform and investment — again an indication of the trade paper’s strengthening position in this debate — are highlighted in the article:
“He argues that Germany has been so "cut to the bone" (kaputtgespart) that the shortcomings can no longer be remedied with regular funds. "That's why we need a reform of the debt brake or the possibility of creating special funds (Sondervermögen— same word used to describe the €100bn Zeitenwende fund for the military) for future investments at both federal and state level".
The article also points out that “even advocates of the debt brake such as the Bundesbank, the German Council of Economic Experts and the Federation of German Industries (BDI) are calling for a cautious reform of the credit rule, especially as Germany's debt is considerably lower than that of all other major industrialized nations.” This list could also have included the IMF, which also recently recommended reform in its annual ‘Article IV’ report on Germany.
The key mover on this, of course, is Friedrich Merz, who has been tight-lipped on any such developments so far. However,
“according to information from the SZ, Merz himself is also more flexible internally than he appears to be externally. Because he knows that if the CDU/CSU wins the 2025 Bundestag elections, he will face similar budgetary problems as chancellor as the ‘Ampel’ coalition does today.”
The Schuldenbremse has long been the dominant issue in German politics, especially since the pandemic, but the debate has sharpened against the ‘stagflation’ which has set in in recent years.
Changes to the rule, which has locked the German state into super-balanced budgets for years, could have enormous consequences for wider European politics and finance. It would have consequences for Germany’s so-called Zeitenwende in defence policy too, which has lost out in the recent decisions on government spending (to the “annoyance” of Defence Minister Boris Pistorius) as a result of the FDP’s insistence on the maintaining the debt brake at all costs.
Chinese cyber attack on Berlin: Beijing’s ambassador summoned to Foreign Office
The Auswärtige Amt is reported to have summoned the Chinese ambassador over cyberattacks on German government infrastructure, which Berlin has publicly blamed on the CCP.
The attack, which took place 3 years ago, was aimed at the Federal Agency for Cartography and Geodesy (BKG). “We now know that state-controlled Chinese cyber actors infiltrated the BKG network for espionage purposes,” a government spokesperson has said.
FAZ’s Peter Sturm has written up his thoughts for the paper. “The fact that there has not been such a summons since the massacre on Tiananmen Square in 1989,” he writes, “shows just how important the matter rightly is to Berlin.”
“However, no one should now believe that China will cease such activities in future as a result of the hopefully harnessed protest. It is much more important to send a message to the attackers that no matter how cleverly planned their actions are, they will ultimately be discovered.
He goes on to explain how this incident must change German thinking on China, echoing the debate in the UK in light of the deep involvement of Chinese tech firm Huawei in the UK’s 5G network several years ago.
“The German public needs to get used to the idea that there are powers in the world that want to do all they can to harm our country. Anyone who still thinks that it can't be that bad if Chinese components are used in high-tech systems is really beyond help.”