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THE FINANCING OF
STATES
AT THE CROSSROADS
GETTING OUT OF THE HAMSTER WHEEL TREADMILL OF WISHFUL THINKING
By
LUDGER SCHUHKNECHT,
Chief Economist at the Federal Ministry of Finance, of the Federal Republic of Germany,
Berlin, from Frankfurter Allgemeine Zeitung, Frankfurt, Germany, June 16, 2016
The consolidation of the financing of the states has
been preliminarily finished by most of the Western
World countries at the moment. This is proven by the
latest forecast of the European Commission, and this is
welcomedbymanyof the topeconomistsof theKeynesian
School of Thought. Also, most of the international
organisations are satisfied, unless that they are even
calling for more additional expenditure programs. It
seems that one especially likes to shoot at Germany, in
order to transform the last tiny space of “fiscal space” into
more short term demand and long term debt. In spite of
expense increasing politics in Germany for refugees, for
more investments and for higher social entitlements, it is
still not yet enough, as express experts like Joseph Stiglitz,
several international organisations and several prominent
politicians in other parts of the world.
In view of all the love for a strong demand, one likes to
overlook, that there are reasons to continue the healing
of the financing of the states. Because demand requires
trust. This is not really created, when the fiscal virtue is
deferred to tomorrow, or when it then again is also not
considered as acceptable, to then to defer it further to
forever and a day.
Firstly, things are not that bad for most of the Western
World economies, in spite of exceptions, and the
unemployment ratio is low. Europe is growing above
average, the United States of America are growing in the
seventh year. There is no convincing evidence of a global
lack of demand or a crisis, which would call for such a
global stimulus. In Germany, the situation is rather more
one of full to excessive capacity utilisation, so that a
stimulus here does not make any sense at all.
secondly, there is neither in Germany nor in other
countries the often quoted “fiscal space”, that is leeway
for more government expenditures. Most of the
industrial countries rather have the problem of record-
indebtedness, which has been strongly increased after
the Financial Crisis. On average for the Euro-Zone the
government debt has increased by short of 50 % to over
90 % of GDP. In the G 7-countries, the total debt of the
state is even at 120 %, in the United States of America
higher than 100 %, and in Japan around 250 %. The debt
ratio, though, is at the moment not increasing further in
most of the countries, but it also does hardly go down,
because there is hardly any progress when it comes to
decreasing the annual government budget deficits.
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