By SPIEGEL Staff
A new competition has erupted among the leaders of Berlin's grand coalition government of conservative Christian Democrats and center-left Social Democrats. Their objective is to plug three concepts, in the midst of the crisis, as elegantly as possible: hope, security and a positive attitude. Everyone wants to be part of the game, including Chancellor Angela Merkel.
Caricatures of German politicians, on a deck of cards. Are they gambling that the electorate will believe their election promises?
Even after the war, when Germany was in ruins, these artists managed to create new works out of a barren wasteland, says Merkel. She points out that the challenges these artists faced are a clear sign that the Germans, once again, will be able to find their way out of the current mess, the economic crisis. She insists that things will improve, that Germans should not give up, and that "art is hope."
At about the same time, Labor Minister Olaf Scholz is traveling in a minibus from the southwestern city of Mainz to a small town called Waigandshain, where he plans to visit a wind turbine manufacturer. It is early summer, and as the bus passes through the Westerwald region, Scholz is discussing the state of retirement pensions in Germany. "Pensions will not be reduced," he promises, noting that the government's pension coffers are full and old age pensions secure. "I know of no one in the government who disagrees with me on this point," says Scholz.
Welcome to the land of illusions. While the economic crisis eats its way more deeply into the real economy day by day, the government in Berlin has put itself on autopilot. Even as the crisis builds to grave proportions in front of its eyes, the Grand Coalition is behaving as if it could survive the storm without changing course.
While experts are still uncertain how much longer the economic slump will last, they agree that the deepest recession of the postwar period will have dramatic consequences. Unemployment will rise to threatening levels, and government debt will balloon. No matter which coalition of parties comes to power after national elections on Sept. 28, it will face the same choice between two evils: Either taxes and contributions will have to be increased or government expenditures significantly reduced.
Presenting the Bill After the Elections
But this is a truth that the major parties prefer not to acknowledge, especially not during an election campaign. Instead, the two coalition parties are doing their best to ignore reality. The CDU and its Bavarian sister party, the Christian Social Union (CSU), are promising citizens billions in tax cuts. The SPD is promising new social benefits, even though it still has no idea how the government will pay for an inevitable rise in unemployment this year and next.
As is so often the case in the run-up to important elections in Germany, politicians spread good deeds and promises before Election Day, but wait until after the election to present the citizens with the bill.
Nevertheless, it is high time for politicians to be thinking about how to cope with the costs of the economic crisis, which will run into the billions. Who will pay the piper, and how quickly should the state's finances be brought back into line again? Where are cutbacks possible and where are they absolutely necessary? Finally, what can politicians do to guide the economy along a new path to growth in the coming years? In light of the daunting challenges of the future, last week's pronouncements by members of the grand coalition feel like a reckless mixture of horse trading and blindness to reality. They will pose a heavy burden for the next administration, which will not only have to cope with the dramatic state of government finances, but also with the accusation of having lied to citizens once again.
Just how large the gap between campaign promises and reality is will become evident in no more than two weeks, when the government releases its tax revenue estimate. It is already clear that the numbers will be devastating. Experts on the staff of Finance Minister Steinbrück expect that federal, state and local governments will face a shortfall for 2009 of close to 25 billion ($33 billion), compared with the last estimate, with about half of the projected shortfall representing a decline in the federal government's tax revenues. Federal, state and local governments can expect to see their tax revenues decline by more than 300 billion by 2013, with the federal government in Berlin facing, once again, about half of that shortfall. And the crisis is not just putting a dent in tax revenues -- it is also responsible for sharply increasing government expenditures. The costs of social welfare will rise as more people lose their jobs. According to an estimate by the CDU/CSU parliamentary group, the increased costs to Germany's social insurance system will amount to 8 billion ($10.6 billion) this year alone.
For the time being, Steinbrück will be forced to increase government borrowing to offset lost tax revenues and increased expenditure. However, the debt ceiling already approved by the German parliament, the Bundestag, is no longer sufficient. To make up the difference, Steinbrück plans to present parliament with a supplementary budget by the end of May or early June, in which he will seek approval of up to 15 billion ($20 billion) in new borrowing.
Steinbrück plans to incur a total of 50 billion ($66 billion) in new government debt this year, more than under any of his predecessors. This sum does not even include a portion of the government's investment in the economic stimulus package or the costs arising from the bank crisis. Both of these expenditures have been hidden in supplementary budgets. But next year's figures will be even more dramatic. Steinbrück anticipates new government borrowing of up to 80 billion ($106 billion) in 2010, a sum that, once again, does not include supplementary budgets.
Prolonged Period of High Budget Deficits
The government budget is also burdened by 17.5 billion ($23 billion) in loans for the Federal Employment Agency (BA), according to an internal coalition document. This sum, which is derived from estimates prepared by the Nuremberg-based agency, is absent from government debt statistics as it officially constitutes a loan. Steinbrück's commitments to the BA are offset by a claim for repayment of the funds, but no one in Berlin expects that it will ever be repaid. According to the coalition document, "the repayment of a sum of this magnitude within a reasonable period of time appears highly unrealistic."
Germany's states face similar budget shortfalls. They too will be forced to finance their budgets in the coming years with unprecedented levels of borrowing. This, in turn, will lead to a rise in the national debt. Steinbrück's experts predict that government debt will reach 80 percent of gross domestic product by 2013, as compared with 66 percent in 2008.
In light of these somber prospects, budget experts within the governing coalition believe it is unrealistic to promise tax cuts. "The state of the government budget is dramatic," says Carsten Schneider, the SPD parliamentary group's chief budget expert. "Therefore, there is no room for tax cuts."
And yet the Social Democrats' campaign platform includes the promise of lower taxes for large segments of the population. The chancellor, for her part, is apparently determined not to be outdone by the SPD. Seemingly oblivious to budget deficits and billions in tax shortfalls, Merkel and CDU General Secretary Ronald Pofalla are hoping to woo voters with empty promises. The CDU leadership remembers all too clearly its announcement of an increase in sales taxes during the 2005 election campaign -- and its disappointing performance in the election.
This time, the strategy is to sweet-talk voters instead of scaring them. The Christian Democrats' tentative plan calls for a significant reduction in income tax for all brackets, but a final decision will not be made until the tax revenue estimate is announced in mid-May. Either way, the party leadership is determined to include at least some form of tax cut in its campaign.
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