In Germany, a turn to rigor is confirmed

In Germany, a turn to rigor is confirmed


Lars Feld receives us on video from a room where piles of papers reach the ceiling. He is at home in Freiburg im Breisgau in Baden-Württemberg, the city where he holds the university’s economic policy department. But they often go to Berlin. The economist was appointed special adviser to the finance minister, Liberal Democrat Christian Lindner, FDP chairman in February. AND “role” that assures “volunteer”, says Mr Feld World, concerned “Maintain their independence”. “My only boss is the rector of the University of Friborg”, insists.

However, it is difficult to deny the very strong political weight of this commitment. Lars Feld is a student of the “ordoliberal” school, a stream of thought that advocates a limited role for the state in the economy, a fixed currency, and a reduction in public debt. The economist is the best-known proponent of the “debt brake,” a constitutional instrument that limits the federal state’s structural deficit to 0.35% of annual GDP. So when Christian Lindner introduced his new one on May 11th “fiscal policy strategy”Lars Feld was by his side during a press conference. The message was clear: it was time to return to greater budgetary rigor and debt reduction.

Also read: Article reserved for our subscribers In Germany, the finance minister announces a “turning point” in fiscal policy

This episode was a small revenge for Lars Felde. In February 2021, the then Minister of Finance, the current Social Democratic Chancellor, Olaf Scholz, opposed the extension of his term at the helm. “Council of Wise Men”, the Council of Experts for the Assessment of General Economic Development. Fiscal rules were at the heart of the debate, with the Social Democrats and the Greens demanding a reform of the debt brake, accused of unnecessarily curbing public investment, at a time of low inflation, sustained growth and when Germany could borrow at negative prices. rates. Lars Feld had to leave the prestigious circle after ten years of service.

Warning

A year later, the economic situation changed dramatically. Inflation, once thought to be gone, has returned sharply in Germany due to disruptions in global supply chains, the war in Ukraine and labor shortages. And Lars Feld, reinforced by his warnings that interest rates would inevitably rise, gained further influence. “I’m talking about stagflation very clearly,” explains Mr Feld, who expects inflation to be high this year, in the range of 7% to 8%. At the same time, economic activity has been stagnant for two quarters and the outlook is poor. “The situation is not the same as in the 1970s, mainly due to the labor market. But stagflation is not a common occurrence. And politics has few options for dealing with such a situation. It needs to be made clear. »

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