Germany necessitates a sensible financial policy once more.
Economist Philippa Sigl-Glöckner is vying for the SPD in the Bundestag elections. In her book "Good Money", she advocates for refining the debt limit. In an interview, she explains why it's crucial not to rely on arbitrary figures.
So, what's the deal with "Good Money"? What constitutes "good money" versus "bad money"?
Sigl-Glöckner: Money isn't just magically sprung from the heavens; people create it. We decide the guidelines, which means we can mold money to our will. To me, good money is currency that benefits our societal ambitions. Conversely, bad money is currency that neglects these aspirations.
That sounds pretty abstract. What societal ambitions should money support?
People frequently perceive money with a sour taste in their mouths due to a perpetual shortage in supply for our collective needs. Quality education, robust infrastructure, a robust social system - these are the pillars that steer common ground for society. I make a compelling case for additional room for maneuver in "Good Money".
And by "room for maneuver," you imply the necessity for new debt to finance aspirations? In other words, the debt limit must be modified?
Within the ethos of the debt limit, there's still tremendous potential. Its framework allows for flexible design if you scrutinize it closely. However, it's illogical to keep the debt limit unaltered in its current form, as it complicates and adds financial burdens to our collective goals.
Let me delve into the debt limit itself. Article 115 of the Basic Law permits the taking on of 0.35% of GDP's new debt each year, regardless of how the economy evolves. If the economy is suffering, there's leeway for exceeding the limit.
We should certainly maintain Article 115. Regulating government debt is vital. Issuing government bonds is a potent political instrument. Yet, the current version of Article 115 is problematic. The number 0.35 is arbitrary and lacks justification. I'd replace it with criteria for debt rules that each government autonomously determines. New Zealand employed this method for years.
And what might these criteria look like?
They should include at least two stipulations. "Sustainability" must be among the criteria, for debt generates intergenerational connections. Our offspring will eventually bear the debt interest or shoulder the regret of debt-financed untapped investments. This is why fiscal policy always demands an outlook on the future. Secondly, I'd give the government permission to borrow for productive deeds.
That brings back old arguments in economic academia. What constitutes productive investments or expenditures, and what constitutes public consumption?
Yes, but that ultimately boils down to an interpretation debate. The Basic Law cannot enforce that. Currently, we've attempted to enforce fine specifics in the Basic Law - take the 0.35 percentage. However, the Basic Law pertains to the fundamental principles of coexistence. We're permanently incorporating numbers and technical terms into the Basic Law where it ought to be about human dignity.
The FDP has made the debt limit a slogan of late. Are you truly optimistic about a reform being possible?
No finance minister, regardless of political affiliation, needs to have an FDP financial background to make this crucial figure a touchstone. Social democratic finance ministers have previously elevated this crucial figure to the forefront of financial planning.
I don't join politics to serve as a cheerleader but rather to initiate change. The debt ratio remains politically appealing. Therefore, we need a daring finance minister who refuses to hide behind arbitrary key figures.
Your political pursuit aligns well with your intentions to represent the SPD in Munich North for the upcoming federal election...
I profoundly appreciate your confidence in me. My focus remains on garnering a direct mandate in Munich. It's attainable, and that's the goal I'm gunning for.
But will the finance portfolio reunite you with Africa and development policy, given your previous stint with the World Bank in Liberia?
Absolutely, heading up German public financing reforms represents one of the most critical projects in our contemporary era. Only once we've excelled in this domain can we sensibly contribute to Africa's progress. Governments will continue suffering with development aid concerns, however, if decaying infrastructures coexist in the same territory. That's difficult to explain to anyone.
And would you advocate a debt limit refinement, even if the Chancellor, contrary to polls, were Olaf Scholz?
Scholz has just publicly supported debt limit reform, but this is irrespective of his stance. I'll continue advocating for it, as I seek to enter politics. Germany needs grounded economic leadership once again.
Currently, the financial climate is shifting. Most economists favor refining fiscal frameworks in the ongoing crisis, i.e., by lessening bureaucracy, tax incentives for investments yet not particularly for new debt or subsidies.
I will not deny the necessity for more favorable framework conditions. We do need them. However, some arguments against a proactive industrial policy seem overly simplified to me. In emerging industries, crucial economies of scale are often lacking, only rendering companies profitable beyond a certain threshold. In the book, I draw an analogy using a mountain range, during which companies may fall void of direction or into ravines without proper guidance.
For which you're still serving as the inaugural director...
We found Intel's decision baffling. With a budget of 10 billion euros, we could lavish our education institutions. My primary concern is, what kind of economic policy drives businesses with consistently successful operations in Germany, without constant subsidies?
What's your take on that question then?
Temporary incentives such as reduced premiums or network fees for half a year, do minimal impact. These don't impact investment decisions. What's essential is stability, so companies can trust commitments for several years. Companies won't invest heavily if the government is perpetually cutting and reintroducing premiums. Stability must be permanent.
These seem like long-term strategies. Politics, however, thrives on short-term triumphs. And in the short term, we're struggling with growth. What's your method for overcoming this?
I'm not a politician, thus can't propose a resolution.
This growth slump is somewhat nonsensical given the vast amount of tasks that presently require attention. We must revamp our public infrastructure across the spectrum and quickly shift our economy towards CO2-neutral production. I'd initiate by ensuring necessary public funds are allocated for road and school repairs. Then, I'd explore methods to make decarbonized business models profitable at the earliest opportunity. Investment subsidies could be beneficial, but coordinated European investments in the energy sector to make electricity as inexpensive as possible might also help.
Would you advocate for an industrial electricity rate then?
Only if politics has a blueprint to secure consistently low electricity costs in the long term. This can be accomplished by utilizing Europe's access to wind power from Scandinavia and solar energy from Southern Europe. We won't achieve our objectives with solely German initiatives.
Jannik Tillar conversed with Philipp Sigl-Glöckner
This interview originally appeared on Capital.de**
Sigl-Glöckner: In her book "Good Money", she also discusses the need for refining the debt limit within the context of an Economic and Monetary Union. She argues that the current version of the debt limit, such as Article 115 in Germany, is problematic due to its arbitrary nature and lack of justification. Instead, she suggests replacing it with criteria for debt rules that each government autonomously determines.
Additionally, Sigl-Glöckner highlights the importance of the Economic and Monetary Union in fostering a common currency and shared financial stability. She believes that countries in the union should work together to ensure that their debt policies align with the principles of sustainability and productive investment, and should not rely on arbitrary figures for debt limits.
