It’s an exciting week in the German Bundestag (the German legislative body, its lower house of Congress). Earlier this week, German Bundesfinanzminister (secretary of finance) Olaf Scholz presented the Haushaltsentwurf (budget draft) for 2021. The Bundesregierung (federal government) has agreed; now it’s time for the Bundestag to follow suit. But before that happens, they have four days to discuss and criticize the Entwurf, and suggest changes where they so deem necessary. At the end of the week, on Friday, they have to vote on it. Like in all countries, the Haushalt is a very, very important subject, as it decides where all the money flows for an entire year. But this year is particularly interesting, as the coronavirus put additional strain on the German economy and therefore the German Haushalt. It’s not just a little spike, but a big one in Ausgaben (spending): It’s a Rekord-Haushalt (record budget). Furthermore, 2021 is a Wahljahr (election year) in Germany, where Scholz will be a candidate. So let’s learn some German and get to know some German politics in the process. What does the Haushalt say? What is it criticized for? And what did Merkel say to go viral during the Generaldebatte (general debate) yesterday? I’ve broken this post down into two parts, one on Thursday and one on Friday. Today, we’ll have a look at the Haushalt itself.

Click here for to read all parts of this series.

The German Haushalt and the Schuldenbremse

The historical debt ratio of Germany from 2002 to 2015 (Image by Mavomi at Commons.wikimedia.org, copyright-free use)

Let’s start by talking about what the Haushalt even is. Like in the US, the German Haushalt is made up of the Einnahmen (“intakes”, revenue) that the Bundesregierung collects. It’s rarely enough, and so almost all budgets have some Verschuldung (debt), too. The Ausgaben (“expenses”, spending) of the German Haushalt for 2021 is planned to be 498 billion euros; that number is tiny compared to the 4829 billion dollars that the US plans to spend in 2021.¹This makes sense, as the German GDP is around 4 trillion euros, which is also dwarfed by the US GDP of 20.5 trillion dollars. But even as a fraction of their respective GDP, the US budget is almost twice as big as the German one.

With increased expenses due to the coronavirus, 2020’s Haushalt also ballooned to a similar number as planned for 2021. If you compare the 498 billion to corona-free 2019, it’s a lot higher, however. That year had a Haushalt of just 357 billion euros. And all of those extra Ausgaben are financed with new debt. And that’s problematic because of the Schuldenregel (debt rule).

Introduced in response to the Great Recession around 2009 in Germany, the Schuldenregel anchored in the German Grundgesetz (Germany’s Basic Law; it’s basically our constitution) says that the Bundesregierung is not allowed to incur any debt in their budget above 0.35% of Germany’s GDP. It also forbids the Bundesländer (German states) to have deficits in their budgets at all. As it is stated in the Grundgesetz: Die Haushalte von Bund und Ländern sind grundsätzlich ohne Einnahmen aus Krediten auszugleichen (In principle, the federal and state budgets are to be balanced without revenue from credits).

Aha! In principle! Yes, there are exceptions. One of those are außergewöhnliche Notsituationen (extraordinary emergency situations), which the coronavirus definitely is. However, the Bundestag has to vote with a majority that this is indeed the case for 2021 to allow these new debts.

There is another reason for the introduction of this Schuldenregel, or Schuldenbremse (debt brake), and that’s related to the Eurozone. As part of a healthy currency, various Kriterien (criteria) were agreed upon in 1992, the so-called Maastricht-Kriterien (Maastricht Criteria). One of those stipulates that a Member State’s debt is not allowed to exceed 60% of GDP. In other words, the debt ratio must be lower than 60%. As you can see above, Germany has been above that limit ever since 2002. However, over the last ten years, the German debt ratio was reduced significantly. But the coronavirus is putting a stop to this. With the new debts taken on this year and in 2021, the debt ratio will likely be around 75% again!

So, taking on a planned debt of 180 billion euros to balance the 2021 budget is quite a big deal in Germany. Definitely a big pain point of this Haushalt!

If you really dig this stuff and want to read a lot more about it, this article is quite awesome. But let’s move on.

Wir werden aus der Krise herauswachsen

Olav Scholz giving a speech in the Bundestag in 2018 (Image by OSCE Parliamentary Assembly at Flickr.com under license CC BY SA 2.0)

The new Haushalt will provide Entlastung (relief) for Germans by removing the Solidaritätszuschlag for most taxpayers, adding 15 euros Kindergeld (child allowance) and giving a higher Grundfreibetrag (basic tax-free exemption) for all. Furthermore, Investitionen (investments) would be made in the Infrastruktur (infrastructure).

Olaf Scholz presented the Bundeshaushalt on Tuesday in the Bundestag. The devise (motto) of the Haushaltsentwurf as he presented it was: Wir werden aus der Krise herauswachsen (We will grow out of the crisis). He called the new debts necessary and said that the German approach to fighting the Coronavirus was seen as the Goldstandard (gold standard) by the EU and the IMF.

However, there was quite some criticism. Because Germany was doing so well to reduce debts, Scholz was known as a Sparfuchs (“saving fox”, a smart saver). Liberal Oppositionspartei (opposition party) FDP now calls him a Schuldenkönig (debt king). Other complaints came from Die Grünen (The Greens), who criticized that the Entwurf includes too few Investitionen to fight the Klimawandel (climate change). The AFD sees the Haushaltsentwurf as Coronawahnsinn (corona insanity) and thinks the massive overspending is in no way justifiable.

Counting up the 2020 debt with the planned 180, you look at about 400 billion euros. That’s more than the entire budget in a normal year. The Bundesregierung provides a 17-year period to pay off this amount. How? It’s the good old story – reducing Ausgaben, or increasing Einnahmen through Steuererhöhungen (tax raises). What it will be, and who will foot the bill in the end will be big themes in the upcoming Wahlkampf (election campaign).

Watch the full 2-hour debate here:

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  This makes sense, as the German GDP is around 4 trillion euros, which is also dwarfed by the US GDP of 20.5 trillion dollars. But even as a fraction of their respective GDP, the US budget is almost twice as big as the German one.