Farmers protest as anger spreads at austerity born of Germany’s fiscal fetish

Temperatures were well below zero in Berlin on Monday when tens of thousands of tractor-driving farmers made their loud arrival. Blocking motorways across the capital – and the country – the heat was palpable in their honking protest against plans to abolish farm subsidies on fuel and motor tax – that, they say, will be their ruin.

The wave of protest continues later this week with a road haulier protest and, most likely, a two-day strike by train drivers. All are united by anger at the consequences of Germany’s forced embrace of austerity as a permanent fiscal fetish.

The Berlin coalition hoped its cuts to farmer subsidies would raise €1 billion in extra cash – money the government needs as part of an urgent savings push.

Just over a decade ago Germany made painful austerity demands of Ireland and other crisis-hit euro neighbours. But the rules Germans have imposed on themselves have taken a deep-seated cultural and historical aversion to debt and embedded them in the constitution.

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The so-called “debt brake” forbids the Bundestag parliament from accepting any budget where borrowing exceeds 0.35 per cent of gross domestic product.

This reflects widespread economic thinking in Germany that the state should not be tempted to stimulate its economy with borrowed money. Instead it should cut back before it invests.

The result: the German economy is in crisis, with growth likely to remain negative this year – forecasts predict -0.3 per cent – but its room for borrowing and economic stimulus remains negligible.

This dominant school of economic thought – at odds with Europe’s economic mainstream – generated huge friction in the euro crisis. A decade on, however, the political blowback in Germany is remarkable.

The trouble began when, while donning this fiscal chastity belt, Merkel-era officials began working full-time to subvert it with off-balance sheet funds.

Two months ago, Germany’s constitutional court judges intervened to remind Berlin politicians of their vow of fiscal chastity. Calling time on creative accounting, the court’s bombshell ruling blew a €60 billion hole in Germany’s federal budget.

Changing the strict debt constitutional provision is possible but would require a two-thirds vote in parliament – and not even the three-way coalition lead by chancellor Olaf Scholz can agree on the way forward.

His Social Democratic Party (SPD) and Green partners are determined to reform the debt brake, at the very least in the form of a new “Golden Rule”. This would allow politicians distinguish between borrowing for sensible spending on long-term infrastructure and economic transformation – and less sensible spending, such as election-year giveaways.

With a second year of recession likely in Europe’s largest economy, a new report warned on Monday that Germany’s effective borrowing ban is prolonging the negative effects of the pandemic and war. Worse, the IMK economic institute argues that Germany is endangering its own future prosperity by deliberately starving itself of funding for digital transformation and green investment.

For instance the debt brake ruling means additional spending plans for the ramshackle state-owned train company – on driver salaries and urgent rail works – remains up in the air.

Prof Sebastian Dullien, an IMK economist, said 2024 “should be the year that we emerge from the acute crises but instead a collapse is looming in economic-political action”. That Germany is not investing enough but also has the lowest debt in the G7 was, he added, “utterly absurd”.

But what is absurd for some is sensible for others. At a weekend gathering in Stuttgart, chancellor Scholz’s liberal coalition partner sang from a very different hymn-sheet. Free Democratic Party (FDP) leader Christian Lindner secured huge applause for defending the debt brake. As federal finance minister, Lindner said he had “economic sense and the constitution” on his side. Limiting borrowing in Berlin, he added, ensured that “Germany can remain an anchor of stability in Europe”.

Germany’s liberals think the problem is not the debt brake limits on borrowing but the scale of spending on welfare and subsidies – such as for farmers.

Even before Monday’s strikes began, the Berlin coalition softened its proposed tax and subsidy changes for them. But they are not alone: after years of keeping their heads down in pay demands, German private and public sector workers are more defensive and demanding than at any other time in living memory.

Trying to keep warm in minus 8 degrees at the Brandenburg Gate, 42-year-old Julian said the fury among farmers was palpable across his farming community in faraway Saxony.

“Why,” he asked, “should we be used to plug the holes in the budget?”

Why Germany’s cash- and loan-starved federal budget has so many holes to plug is, it seems, a discussion for another day.