“The Greek economy has become more resilient”

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“Reducing public debt requires great patience,” German Federal Finance Minister Christian Lindner told Kathimerini. “However, Greece has proven that it is capable of meeting such challenges,” he adds. [German Federal Ministry of Finance]

Both Athens and Berlin must “normalize” their public finances without “abusing” the escape clause, underlines German Federal Finance Minister Christian Lindner in an exclusive interview with Kathimerini.

He clarified that the approach must not include tax increases, but a review of spending and the return of additional state revenues resulting from the high rate of inflation. He also evokes the Greek economy, the energy crisis and the Stability Pact.

The Commission has recommended extending flexibility for Member States’ public finances until 2023. You have reservations. Would you like to specify what this would imply concretely?

The European Commission has recommended extending the current escape clause of the Stability and Growth Pact. Current economic data would have allowed a different interpretation; however, the great uncertainty was a determining factor for the Commission. The important thing now is that Member States do not use this clause unnecessarily. We all need to carefully consider what expenditures are really necessary and what should be the priorities. The Greek economy has recovered well since the Covid-19 pandemic, better than many other European states.

What about Germany? Will he also restrict his fiscal policy?

I would say a normalization rather than a restriction of fiscal policy. After the heavy additional spending of the past two years, I want to return to a neutral fiscal policy. The state should not help fuel inflation. In Germany, the debt brake, enshrined in the Constitution, obliges us to again respect the provisions on the public debt. This reinforces the credibility of our institutions and allows the creation of budgetary buffers, to protect us against future crises.

Does fiscal discipline mean higher taxes for increased income or lower spending for reduced spending?

German businesses and households are already heavily penalized by the sharp rise in prices, particularly of energy. This is why it is important to me to return additional income, poured into the state coffers due to the high rate of inflation, to the citizens and businesses that have been particularly affected. With respect to spending, there has been coordination within the federal government to set priorities more consistently and to review the effectiveness of that spending. Tax increases would be counterproductive.

There is a conversation to be had about the long-term fiscal rules of the euro zone. What do you think of the work plan of the European Stability Mechanism for a deficit of 3% of GDP but a debt ceiling of 100% of GDP?

We need growing and financially stable national economies. European fiscal rules are an important prerequisite for achieving this. During recent crises, this framework has consistently proven to be flexible. Over the past few months, we have had many conversations at European level about revising this framework. We will also need a coherent system to reduce public debt in the future. Raising the debt ceiling would be a step in the wrong direction. Your country, in particular, has a bitter experience of high public debt. Nor do I expect such a suggestion from the European Commission.

What do you think of the suggestions including exempting defense spending from budget calculations?

Defense expenditure is naturally covered by European budgetary rules. We should stick to that.

What is your work scenario at the German Ministry of Finance? How do you see the evolution of inflation?

The economic recovery after the pandemic is significantly burdened by the consequences of the Russian war of aggression in Ukraine. Moreover, inflation is at its highest level in 40 years. According to some estimates, the pressure on prices due to fuel and supply chain problems will gradually ease. However, there is also a risk that we will enter a situation of high inflation and low growth rates, the so-called stagflation. We must counter this risk. However, it is important that governments do not put additional pressure on prices. To increase our medium-term growth prospects, what we need today above all are favorable conditions for innovation and the creation of new businesses, less bureaucracy and the mobilization of private investors.

How do you assess the progress made by the Greek economy? What do you think could still be improved?

The Greek economy recovered very quickly from the slowdown caused by the pandemic. The growth rate in 2021 was among the highest in Europe. This shows that the Greek economy has now become more resilient. The unemployment rate has been falling for years. With the National Recovery and Resilience Plan, the Greek government has presented a comprehensive program of reforms aimed at strengthening the country’s growth potential. It is receiving significant support from the European Union with funds from the Recovery and Resilience Facility in the process. Greece is one of the countries whose national recovery and resilience plan is linked to a very ambitious timetable. This should support further economic development, for example through the digitization of administrative and legal processes.

To what extent are you convinced that the Greek debt is sustainable?

The sustainability of public finances is to Greece’s advantage. Reducing the public debt requires great patience. However, Greece has proven capable of meeting such challenges in the past.

What are the sectors in which German companies can invest more, for the mutual benefit of your country and Greece?

Greek and German companies have been working together well for years, which is in our mutual interest and facilitated by the European internal market. The decision on which sectors of the Greek economy German companies invest in is, of course, up to the companies themselves. The transition to renewable energy sources is a big challenge for many companies in Europe and affects Greek and German companies alike.

Some believe that your country will not be able to achieve the goals set by the green transition and digital transformation without generous public investments in infrastructure and accompanying policies. What is your opinion?

The digital transformation and the ecological restructuring of our economy are the main challenges of our time. For citizens and businesses to be able to shape this transition, the conditions must first be met. Of course, targeted public investment is essential, as is the promotion of private investment.

Would you say that Germany made mistakes in its energy security strategy? What is the outlook for the German economy given its dependence on Russian energy reserves?

The unilateral dependence on Russian energy exports was a mistake. We have recognized this and are now diversifying our energy sources to be more independent in the future. The development of renewable energy sources has an important role to play here. By diversifying our energy sources, we reduce pressure on prices. Beyond that, we are working on trade agreements to overcome our supply chain issues and generate economic growth.

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