German socialism approves “creative accounting” to raise the fiscal deficit above what is allowed in the European Union

Germany’s Socialist Government, headed by Olaf Scholz, officially committed to a deficit ceiling of around €45.6 billion by 2023, a margin that on paper guarantees compliance with not exceeding net borrowing of 3% of GDP for the year, a ceiling set by the Maastricht agreements for all members of the European Union.

However, the most recent reports from the German Economic Institute headed by Arndt Gunter Kirchhoff warn that Scholz approved a series of new “creative accounting” measures to force the alignment of public accounts with Eurozone criteria.

According to the institute, counting the discretionary items allocated as “special funds”, the real net indebtedness of the German Government would amount to €140 billion in 2023.

The ruling coalition, which in addition to the Socialists includes the Greens and left-liberals, modified the methodological rules on calculating the special funds in a measure comparable only to what Kirchnerism did with the INDEC in Argentina a decade ago.

The Government acquired powers to assume almost unlimited debt to justify the economic crisis.

At the same time, in accounting terms, this fact will not be reflected in a breach of the fiscal rules in force.

If this alternative measure is met, Germany’s consolidated fiscal deficit will climb to 3.4% of GDP by the end of the year, exceeding the 3% ceiling.

The German Federal Ministry of Finance’s estimates suggest that the total deficit could be as high as 4.5% of GDP by 2023 due to social containment measures and subsidies in the face of the energy crisis.

The country’s public finances have deteriorated since last year’s third quarter.

The German Federal Government recorded expenditures of €101.3 billion in the last three months of 2022, while revenues only amounted to €68.4 billion.

The consolidated fiscal deficit increased from 1.89% of GDP in the third quarter of 2022 to 2.6% of output in the last quarter of the year.

It accumulated a fiscal deterioration of almost 0.9 points of output since June.

In contrast to what happened after the Great Recession of 2008, the German Government is not showing a strong vocation to return to a surplus in public finances and thus reduce the stock of public debt in relation to the GDP.

Germany took up to 9 quarters to return to surplus between 2010 and 2012.

After the pandemic shock, fiscal consolidation promises to be more gradualist and irresponsible.

“It is grotesque that Germany adheres to the strict debt brake but simultaneously may break the generous Maastricht criteria.”

“The excessive use of special funds must end.”

“The federal government should open up the debt brake so that there is transparent room for investment,” warned economist Martin Beznoska on behalf of the German Economic Institute.

The increased fundraising by the public sector threatens to generate a crowding-out effect for credit to families and companies.

The anemia of resources channeled to the private sector will only deepen the predicted recession for Germany’s economy.

With information from La Derecha Diario