Oliver Berg/picture-alliance/dpa/AP Images
Steam rises from the RWE lignite-fired Niederaussem power plant in Bergheim, Germany, November 28, 2023.
As my colleague David Dayen noted last week, America’s climate policy and monetary policy are, to put it gently, at odds. The core of the climate policy, which is also a re-industrialization policy, are the provisions in the Inflation Reduction Act that provide generous tax credits to companies hastening our transition to green energy. In the little over a year since it was enacted, the IRA has almost doubled the nation’s rate of factory construction, as electric-vehicle and battery factories have broken ground in a multitude of states. In recent months, however, as David pointed out, the high interest rates imposed by the Federal Reserve have made the borrowing with which these companies fund their construction projects prohibitively expensive, slowing construction or stopping it altogether, thus undercutting the IRA and our transition to a cleaner, safer economy.
Now, Germany has run smack into the same wall. In its pending budget for 2024, there were 60 billion euros allotted to a fund for a green transition, with particulars—like subsidies for the purchase of electric vehicles—much like ours. The government proposed to take that 60 billion from the unspent funds set aside to get the country through the COVID pandemic. Last week, however, Germany’s high court ruled that the government could not repurpose those funds—nor, it said, could the government borrow that 60 billion because the German constitution restricts the government from borrowing more than 0.35 percent of the nation’s GDP. In other words, despite its plans to transition away from its heavy reliance on coal, despite its pledge to provide funding to Ukraine, and despite the cutoff of the Russian oil and gas that is causing Germany’s economy actually to shrink this year, the country is hemmed in by its long-standing commitment to non-Keynesian, or pre-Keynesian, or anti-Keynesian economics.
This should, at minimum, ring a faint bell. As the European economy tanked in the wake of the 2008 global financial panic, Germany wielded its outsized power in the EU and the European Central Bank to keep the bank from loaning funds to Europe’s most devastated nations, and to require those nations to balance their budgets by cutting spending. In the nations of the European South—most particularly Greece—this turned the recession into a deep, prolonged depression from which Greece has emerged only in the past few years.
A still fainter bell from Germany’s own past also tinkles dimly. Between the 1929 crash and the Nazis’ rise to power in 1933, successive German governments also cut spending to appease the gods of budget balance, creating a level of mass unemployment and desperation that helped bring Hitler to power.
The German economy is nowhere even remotely near such dire straits today, but given Germany’s problematic history of budget balance über alles, the nation’s failure to understand that the promotion of investment and consumption is a necessary responsibility of government shows an economic and social learning curve that is an almost perfectly flat line.
This week, Germany’s coalition government is struggling to see how it can still build a cleaner economy within the constraints of its constitution. What it really needs to do is to amend its constitution, which is a lot easier to do in Germany than it is here. As the planet needs a green Germany, as Europe needs a robust Germany, and as civilization needs a Germany where the quasi-neo-Nazi AfD is not a rising threat, the sooner Germany gets over its obsessive budget balance disorder, the better.
