Germany Votes for Change – Free Democratic Party Posts Best Results Ever

The elections in Germany are over and the political landscape is changing drastically. Personally, I am excited about the results. After 11 years of absence the Free Democratic Party (FDP) is returning to government with 14.6% of the votes. Their main agenda in a nutshell:

  • more net income from gross income for more growth, more jobs and more prosperity
  • more freedom through stronger civil rights
  • more education for better prospects for the future
  • more competition and lesser ideology in environmental policy for more energy
  • more confidence built through international dialogue

Back in May I wrote:

A strong FDP (Free Democratic Party) in the next German coalition would be the best thing that could happen to Germany. No change will emanate from SPD or CDU, just as in the US no change can emerge from Democrats or Republicans in their current state.

The FDP will have to govern in a coalition with the CDU/CSU, the conservative party. Economically, CDU and FDP have more overlaps than on civil policies. The FDP will attempt a reversal of the excessive intrusions into the privacy of Germans commited by SPD and CDU governments over the past years. It will be interesting to see whether the FDP will be able to push through their point of abolishing compulsory conscription into the German military.

The most important push will be on tax policy. The FDP aims at drastic tax cuts, with tax brackets at 10%, 25%, and 35%. How close the conservatives will be willing to move to these demands remains to be seen.

There is a danger that looms for the freedom movement in Europe: If no drastic and real changes are made to the status quo, Germany’s economy will continue to ail and unemployment will not improve. People will then falsely conclude that a pro-freedom party’s program has failed, that more freedom does not bring more prosperity, and once again cast the majority of votes for the big government parties, be they socialist or conservative.

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Germany Considers Constitutional Amendment Against Deficits

The Financial Times writes:

The next German government is almost certain to crack down on spending and drastically raise taxes after the lower house of parliament yesterday adopted measures that come close to banning budget deficits beyond 2016.

The controversial constitutional amendment, part of a reform of federal institutions, will prohibit Germany’s 16 regional governments from running fiscal deficits and limit the structural deficit of the federal government to 0.35 per cent of gross domestic product.

The amendment still requires approval by a two-thirds majority of the upper house of parliament which represents the regions. The vote is scheduled to take place on July 12 and is expected to be approved.

The most sweeping reform of public finances in 40 years was an “economic policy decision of historic proportions”, Peer Steinbrück, finance minister, told parliament shortly before MPs endorsed the amendment with the required two-thirds majority.

The vote underlines Berlin’s determination quickly to plug the holes that the economic crisis, two fiscal stimulus packages and a €500bn ($706bn, £437bn) rescue operation for German banks are expected to blow in the public coffers this year and next.

In 2009 alone, legislators from the ruling coalition expect the federal budget to show a deficit of more than €80bn, twice the current all-time record of €40bn reached in 1996 as Germany was absorbing the formidable costs of its reunification.

This figure does not include the deficit of the social security system, which is expected to rocket too, as unemployment rises to an expected 5m next year.

The constitutional amendment, popularly known as the “debt brake”, allows a degree of flexibility in tough economic times, just as it encourages governments to build cash reserves in good times.

Yet economists have warned the new rules could force the next government to implement a ruthless fiscal crackdown as soon as it takes office after the general election of September 27 if it is serous about hitting the 2016 deficit target.

“Given the massive fiscal expansion we are currently seeing, the ‘debt brake’ will lead to a significant tightening of fiscal policy in the coming years,” Dirk Schumacher, economist at Goldman Sachs, wrote in a note.

In a separate assessment, the Cologne-based IfW economic institute said the federal government would need to save €10bn a year until 2015 through a mixture of tax rises and spending cuts.

Klaus Zimmermann, president of the DIW economic institute in Berlin, said the next government might have to increase value added tax by six points to 25 per cent. This would be the biggest tax rise in German history.

The “debt brake” could complicate Angela Merkel’s re-election bid. Under pressure from parts of her Christian Democratic Union, the chancellor recently pledged to cut taxes if returned to office in September, though she pointedly failed to put a date on her promise.

The Free Democratic party, the CDU’s traditional ally, has made hefty income tax cuts a key condition for forming a coalition with Ms Merkel’s party should the two jointly obtain more than 50 per cent of the votes.

The debate has cut a deep rift within the CDU, which was threatening to deepen further yesterday as opponents of tax cuts seized on the constitutional change to back their arguments.

Günther Oettinger, the CDU state premier of Baden Wurttemberg, said “promises of broad tax cuts are unrealistic… First we must overcome the crisis, then we need more robust growth, and when we finally get more tax revenues, we should use them to repay debt, finance core state activities and for limited, very targeted tax cuts.”

Oettinger is wrong when he says we have to overcome the crisis first before cutting taxes. It is the same old argument that governments advance again and again so as to procrastinate necessary changes. This amendment is something that states around the world should mimic in one way or another. It is high time to institutionalize fiscal responsibility by legal means.

A strong FDP (Free Democratic Party) in the next German coalition would be the best thing that could happen to Germany. No change will emanate from SPD or CDU, just as in the US no change can emerge from Democrats or Republicans in their current state.

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Dax-Schwergewichte bieten für 2009 Verzicht auf Kündigungen an

As an exception, here post for my German readers:

Weil der historische Vergleich so bestechend ist, muss ich mal ganz kurz deutsche Wirtschaftspolitik ins Spiel bringen. Der Speigel berichtet Dax-Schwergewichte bieten für 2009 Verzicht auf Kündigungen an:

Eine Überlegung kann Bundesfinanzminister Steinbrück dann aber doch verkünden: In der Runde sei vorgeschlagen worden, im kommenden Jahr auf betriebsbedingte Kündigungen zu verzichten, sagt der SPD-Politiker. Stattdessen sollten verstärkt Kurzarbeitergeld und Qualifizierungsmaßnahmen der Bundesagentur in Anspruch genommen werden.

Keine wertvollen Mitarbeiter in die Arbeitslosigkeit schicken

Der Vorschlag für eine solche Selbstverpflichtung der Wirtschaft, erfuhr SPIEGEL ONLINE anschließend, wurde von Vertretern von Dax-Konzernen vorgetragen. Hintergrund der Überlegung: Angesichts der älter werdenden Gesellschaft und dem in Zukunft immer schlimmeren Fachkräftemangel in Deutschland sollten Schlüsselunternehmen in der Krise qualifizierte Mitarbeiter halten, statt sie vorzeitig in die Arbeitslosigkeit zu schicken.

Wenn sich Historie hier wiederholt, dann wird dies nicht die letzte Grosskotz-Sitzung sein. Der erfahrene Leser erkennt sofort die Parallelen mit der Politik von US Praesident Hoover im Jahre 1929, als er, wie ich schon beschreiben habe, im November mehere Sitzungen mit den Bossen der groessten Industrien einberief. Am Ende fielen Beschluesse die Loehne nicht zu senken und keine Arbeiter zu entlassen. Dies fuehrte natuerlich dazu das aus einer Rezession eine langanhaltende Depression wurde, und am ende dann doch Loehne gesenkt und unmengen von Arbeitern entlassen werden mussten.

Deutschland wird ohne Zweifel ueber die naechsten 4 Jahre dasselbe Schicksal erleiden. Die Idee von Freiheit und stabiler Wirtschafts- und Geldpolitik erscheinen mir dort fast komplett ausgeloescht, bis auf die FDP, die, als Deutschlands letzte Hoffnung als Traegerin von Freiheitsidealen, die Ursachen der Kreditkrise zumindest teilweise versteht: Dieses Pamphlet beschreibt zumindest ansatzweise, was die Ursachen sind. Der Loesungsvorschlag, mehr an die Bundesbank abzugeben, ist allerdings  kompletter Schwachsinn. Wenn die amerikanische Zentralbank die Ursache fuer die Finanzkrise ist, dann wird die deutsche es auch nicht richten koennen. Ich schlage dem interessierten leser vor, sich ueber die Ursachen des Business Cycles, erzeugt durch Credit Expansion, zu informieren.

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