Countries that shy away from debt end up with no more money in their coffers. The opposite is the case: investments become tax revenue.
Gave the austerity paradox its name and would be quite old by now: the old British economist John Maynard Keynes Photo: xLIFE Picture Collection/Pond5/imago
Which country did better? Italy’s national debt currently amounts to 142 percent of economic output, Germany’s only 66 percent. The answer seems simple: Germany, of course! German citizens feel like they are the saving champions in the Eurozone. But of course it’s not that simple. The real savings experts are the Italians.
In the 30 years before the corona pandemic, i.e. from 1990 to 2019, they generated an average primary surplus of 1.76 percent. At the same time, the Germans only achieved 0.36 percent. Primary surplus means the amount that remains in the government budget after interest payments are deducted. The only problem is: ironclad austerity has been of no use to the Italians. Nevertheless, national debt remained high.
The Italians faced this Sparparadox confronted with how this phenomenon was once christened by the famous economist John Maynard Keynes. The vicious circle is simple: If a government saves, then there is no demand and the economy collapses. The government may have cut a few billion, but the recession means tax losses. In addition, economic output is now lower, so the debt ratio will ultimately be at least as high as it was before.
A state cannot repay its debts, only grow out of them. The loans automatically become less important as national income increases. But this simple logic continues to be ignored by the Eurozone. On Wednesday, the finance ministers agreed on a reform of the draconian debt and stability pact, which now provides for small easing – but still insists that the euro countries have to repay their debts.
The EU Commission will initiate deficit procedures against Italy and France as early as next year. France’s debt is 114 percent of economic output, which has never been a problem. By the way, Germany benefited directly from this debt. As is well known, the Federal Republic has enormous export surpluses – but this is only possible if other countries import more and take out loans to do so. The German plus in trade with France was around 47 billion euros in 2022 alone.
The European austerity course is senseless, but has dramatic consequences. Among other things, there will be a lack of money to invest in climate protection. But the Germans’ logic is peculiar: the world can end quietly. The main thing is that we hardly have any debt.
2023-12-23 22:12:41
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