Local council revolt mirrors growing German budget standoff

After 20 years in local politics, 66-year-old mayor Peter Gauweiler went out on Tuesday in a blaze of glory – and with a standing ovation – in the southwest German town of Freisbach. The mayor and his 16-member council resigned en masse during Tuesday’s council meeting in Freisbach, a town with a population of 1,100, tucked in between the Rhine and the French border.

They said they were sick of the local state government of Rhineland-Palatinate, based in nearby Mainz, transferring to small towns the responsibility – but not the matching funding – for social tasks like childcare and the local sports hall.

Simultaneously, Gauweiler, a political independent volunteer mayor, says he is obliged to hand over locally-raised taxes to the municipality and state. His refusal to make further spending cuts left him with no approved budget, which in turn meant he could not even apply for loans for the urgent repair measures. “If I cannot decide anything because there is no funding, and because of no funding there is no budget, then what am I doing here?” he told The Irish Times.

He hopes other councils will follow his example and challenge the games of beggar-thy-neighbour between small town Germany and state governments.

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But in state capitals like Mainz politicians say they are also feeling the squeeze. due in part to spiralling costs for refugees, imposed on them without commensurate funding by the federal government in Berlin.

As for Berlin, it has very different priorities. After three crisis years of emergency borrowing – first during the pandemic, then after Russia invaded Ukraine – federal finance minister Christian Lindner is determined to get back to fiscal normality.

Though he faces a €30 billion tax shortfall, and ministries demanding an extra €70 billion, Lindner wants his next budget to once again apply Germany’s constitutional debt brake. This political legacy of the euro crisis, introduced in 2009, limits fresh borrowing to 0.35 per cent of annual gross domestic product (GDP).

As head of the liberal Free Democratic Party (FDP), Lindner has bet his political future on reviving Germany’s so-called “Schwarze Null” or “black zero” politics of balanced budgets. “We have the task of returning to sound public finances and their long-term sustainability,” he said recently, to applause from centre-right politicians and analysts.

But not everyone is cheering. When a recent IMF report forecast that Germany will be the only major world economy to shrink this year, German economist Peter Bofinger noted two data points in the report – namely -0.3 per cent growth in Germany in 2023 but nearly two-thirds less debt than either the US or Japan. “The lowest GDP growth and the lowest budget deficit, perhaps we are doing something wrong in Germany?” he tweeted.

As fears grow of Germany as the “sick man of Europe”, the FDP’s embrace of the debt brake sits uncomfortably with massive investment required for Berlin’s green and digital economic transformation. Additional billions are also required to make good decades of underinvestment in the creaking rail and road infrastructure.

Leading the demands for more debt-financed spending – with an eye on state polls this autumn and next year, along with the 2024 European elections – are Berlin’s two other coalition partners, Greens and the Social Democratic Party (SPD) of chancellor Olaf Scholz.

According to Bavarian SPD leader Florian Brunn, facing re-election in October, Germany is “drifting into recession and we must not save our way even further into a crisis”.

“This is a classic case for Keynesianism,” he told the Tagesspiegel daily, demanding greater state spending to compensate for retreating private investment.

But Keynesian economic ideas, though popular elsewhere in Europe, have never gone down well in Germany. On the contrary, economist analysts view Scholz, a centrist SPD politician and former federal finance minister, as a debt brake loyalist.

For Dr Tobias Hentze, economist at Cologne’s IW institute, there is little prospect of a political shift in Berlin’s thinking on debt-funded state spending. “The debt brake is very strict and, because it is anchored in the constitution, requires it a two-thirds majority to change – which the government doesn’t have.”

Echoing German economists across the ideological spectrum, however, Dr Hentze adds: “What we need now is an investment agenda for the next 10 years.”