By Andreas Kissler
BERLIN (Dow Jones) — Federal Finance Minister Christian Lindner (FDP) has confirmed compliance with the debt brake in the coming year following the latest recommendations from the European Commission on fiscal policy. “Following the International Monetary Fund, the European Commission is now also in favor of us tightening the reins on public finances,” said Lindner before the EU finance ministers discussed the matter in Brussels. Inflation must be combated, for this must be done monetary policy and government fiscal policies work hand in hand. “The time of extensive, expansive fiscal policy is therefore coming to an end,” he emphasized.
“This is an important recommendation for our national budget policy,” explained Lindner. He feels “encouraged” to present a draft budget for 2024 that complies with the debt brake. At the same time, the price brakes for electricity and gas would be ended, so that the deficit would “reduce very significantly”. Lindner was critical of the Commission’s previous proposals for the banking union, which are to be discussed at the meeting in Brussels. “We are absolutely convinced that we need progress with the banking union… but the current proposal by the European Commission cannot yet be approved,” emphasized the Federal Minister of Finance.
On the one hand, Lindner criticized that in the event of bank difficulties, the previously applicable 8 percent inclusion of shareholders and creditors should be deviated from before the use of common European instruments. From our point of view, this is “questionable both in terms of regulatory policy and economics as well as ethically”. On the other hand, the Minister of Finance called for an improvement in the proposals for deposit insurance. Germany has functioning deposit and institute protection systems, and it was “always clear” that the functioning instruments would have to be retained and their functionality protected. This is “no longer the case in the Commission’s proposal”.
In any case, a prerequisite for a common deposit protection system is a different treatment of government bonds in bank balance sheets, which are currently “fictitiously considered risk-free”. “As long as we haven’t solved the problem that in individual areas of our European banking system private finances and public finances are so closely linked, there can be no joint deposit insurance,” emphasized Lindner. “Germany is open to further steps in the area of deposit insurance if, on the other hand, the nexus between public finances and private banks is overcome by treating government bonds differently in bank balance sheets.”
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May 16, 2023 04:32 ET (08:32 GMT)