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  Germany's Economic Insurance Policy: Warming to the 'Steadying Hand' of Government

Germany's Economic Insurance Policy Warming to the 'Steadying Hand' of Government

By Christian Reiermann

Part 2: Finding the Right Mix

Finance Minister Peer Steinbrück views the goings-on in the Economics Ministry with some suspicion. He and a group of his closest advisors have ruled out new measures, and he doesn't want to hear anything about tax cuts. He is concerned about balancing the budget and believes that the effects of anti-cyclical measures are limited. "We don't have a drawer," a member of Steinbrück's staff says caustically.

But if Germany's upswing does in fact come to a grinding halt, Steinbrück will likely face pressure from within his own ranks in the Social Democratic Party, where some openly sympathize with Glos, a member of the conservative Christian Social Union (CSU). "If there is a winter storm raging out at sea, one has to take precautionary steps along the coast," says Ludwig Stiegler, the deputy floor leader of the SPD's parliamentary group.

Stiegler envisions a "mix of measures" to support the economy. Many of his ideas are similar to those of Glos and his staff. Stiegler is currently looking into which infrastructure programs could be given priority treatment.

In addition, there should be a subsidy program for the "vigorous renovation of buildings," proposed by the German government-owned development bank, Kreditanstalt für Wiederaufbau (KfW). Under the program, the federal government would subsidize the interest on loans to stimulate private investment.

Stiegler believes that when the government assembles its 2009 federal budget, it should also put together a so-called "contingency budget." This would provide Steinbrück with the option to increase government borrowing as needed.

Stiegler is also not opposed to the tax cuts Glos proposes. "It would certainly be part of a mix of measures," he says. Stiegler has already thought of ways to facilitate implementation of the tax cuts. Former Economics Minister Karl Schiller's 1967 Stability and Growth Act allows the federal government to grant citizens and business owners a temporary tax rebate.

Glos and his staff would prefer to avoid resorting to the old law. He would rather not open himself up to accusations -- at least not officially -- of having dusted off Keynes's theories. Only a few weeks back, Glos even wanted to repeal the old law, and in 2007 he allowed its fortieth anniversary to pass without fanfare.

But the talk of abolishing the aging law has fallen by the wayside. "Today," a Glos staffer concedes, "that would no longer be appropriate."

Translated from the German by Christopher Sultan

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