Fiscal Sanity In Germany—It Took A Social Democrat Finance Minister!

Olaf Scholz, Germany’s new Social Democratic finance minister, has proposed a budget with the following characteristics: a nominal cut in investment; a reduced ratio of defence spending to gross domestic product; a freezing of funds for development aid at 0.5 per cent of GDP; and a lower contribution to the next EU budget than what he himself had previously suggested. The budget fulfils two narrow goals…It ensures that the government will run a fiscal surplus through the 2019-2022 budget period. And in 2019 Germany’s debt as a percentage of GDP will fall below the 60 per cent threshold set out in the EU’s Maastricht treaty.

Mr Scholz’s ambition is to push the budget into a surplus of 1 per cent of GDP or higher. Such a surplus would, over time, eradicate all public debt.