Germany: Scholz proposes billions for debt-ridden towns
Rebecca Staudenmaier
December 21, 2019
Finance Minister Olaf Scholz proposed helping German towns burdened by debt with a "one-off" payment. The move hints at a possible break with Berlin's long-standing "black-zero" policy and resistance to spending.
Image: picture-alliance/dpa/F. Gambarini
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Germany's most in-the-red towns could soon get help from the government, Finance Minister Olaf Scholz said on Saturday.
In an interview with the Funke media group, Scholz said Berlin "has signaled its willingness" to help remove a €40 billion ($44 billion) debt from local authorities on a "one-off basis."
Out of Germany's 11,000 local authorities, Scholz said the plan concerns "around 2,500 cities and municipalities that are squeezed by so much debt that they can barely breathe."
Removing the debt would likely set local authorities up to spend more on much-needed infrastructure repairs and renovations on schools, kindergartens and swimming pools.
Most of the overindebted municipalities are located in states like North Rhine-Westphalia, Hesse, Rhineland-Palatinate and Saarland, which have been hit hard by deindustrialization.
Scholz added that "interest rates are favorable" for restructuring public debt.
Although he's center-left, Scholz has continued the no-new-debt policy of his conservative predecessorImage: picture alliance/dpa/M. Kappeler
The proposal would still need to be agreed with German Chancellor Angela Merkel's conservatives, the coalition partners of Scholz's center-left SPD, before coming into effect.
It's also likely to face pushback from the leaders of Germany's 16 states, who may be resistant to channeling funds to financially troubled towns outside their states.
Scholz has largely maintained his predecessor Wolfgang Schäuble's so-called "black zero" — a policy of not taking on new debt.
Although Germany is proud of its balanced budget, the government has come under increasing pressure from economists and fellow European Union members to stimulate its economy with higher investment to ward off a possible recession.
'Father of the black zero': Germany's love affair with austerity
Former Finance Minister Wolfgang Schäuble was "the face" of the black zero, which came to be the most visible symbol of Germany's national obsession with a balanced budget.
Image: picture-alliance/dpa/B. Weissbrod
Father of austerity
Former Finance Minister Wolfgang Schäuble was "the face" of the black zero. His 2014 financial plans led to Germany not taking on new debt for the first time since 1969, resulting in a balanced budget. It was achieved by financing spending hikes solely with revenues while reducing public debt.
Image: picture-alliance/dpa/W. Kumm
Have your cake
Germany's appreciation for penny-pinching to ensure it didn't rack up fresh debt elicited many wacky homages. Seen here is a "black zero" cake presented to the state parliament of Lower Saxony by the neoliberal Free Democrats (FDP) in 2015.
Image: picture-alliance/dpa/H. Hollemann
'Debt brake' introduced in 2009
In 2009, Germany's constitution was amended to include a "debt brake," ("Schuldenbremse"), despite economists largely agreeing that it does not reduce economic volatility. German states were not permitted to run any structural deficits, and the federal government could only run a structural deficit of less than 0.35% of GDP.
Image: picture-alliance/dpa/R. Jensen
Debt or guilt?
It is something of a linguistic testament to a cultural truth that the German word for debt, Schuld, is also the word for guilt. Germans are content to live with decaying infrastructure, renting instead of buying and not having modern-style credit cards if it means reducing debt. Here, Baden-Württemberg's then-Finance Minister Nils Schmid celebrated the "black zero" with a statue in 2014.
Image: picture-alliance/dpa/B. Weissbrod
'Black zero' questioned
When Germany was thought to be heading toward recession in 2019, the wisdom of a balanced budget was challenged. Germany's resistance to spending and investing created an economy with little room for innovation, expansion or for startups to flourish. According to the keenly watched ifo Business Climate Index "not a single ray of light was to be seen in any of Germany's key industries" that year.
Image: Imago Images/C. Ohde
EU neighbors suffer
Germany's penchant for a balanced budget not only hindered investment in the country, it also affected its neighbors. As an export-driven economy, Germany profits from exporting goods, but insufficient reinvestment of all that extra capital, paired with a low-wage policy that stymied spending, meant the surplus remained stubbornly high, at the expense of other EU countries.
Image: Imago Images/S. Steinach
Point of pride
Across Germany, being debt-free has been marked with strange celebrations, including members of the Christian Democrats posing with a cardboard cutout of a black zero. The city of Dusseldorf even kept a clock marking how many years it has been debt-free, seen here in March 2016. (This gallery was updated on December 27, 2023, on the occasion of Wolfgang Schauble's death.)
