By Eva Müller and Henrik Müller
It's not enough. Alfred Boss bends over columns of figures and sways his head. No, it's not enough. Far from it.
Hardly anybody knows Germany's state finances as well as this economist from Kiel. Meticulous and painstaking work in the subspace areas of national accounting – that's his mission. For 34 years already, this financial expert has been in the working group Steuerschätzung (Estimate of Tax Receipts). His calculations on the true amount of subsidies are dreaded in both politics and economy. Boss (63) is looking once again at the figures. Sure enough, the sum total seems impressively high at first glance, he says. The Federal government wants to save a total of € 80 billion in the period of time until 2014. But that could only be a beginning: "We are facing a consolidation program of an entirely new magnitude – there's no exemplary model for it in the history of the Federal Republic of Germany." Boss reckons that the German state must reduce its annual structural deficit by € 90 billion until the year 2020. Much more than Berlin's savings plans provide for until now.
That means: Savings of a magnitude like those in the coming year will be on the agenda every year from now on until 2020: About ten billion euros in 2011; an additional ten billions in 2012, and so on. One great feat after the other is required in politics. For the foreseeable future. And it's not even clear whether this will be enough: Additional burdens have not even been taken into account yet – especially from the Euro's protective shield for which Germany made € 148 billions available in guarantees. Loan losses of Euro partners would be reflected in the Federal budget – and would thus further increase the consolidation requirement. Former Minister of Finances, Peer Steinbrück (SPD – Social Democratic Party), is also convinced that the government will have to save even more than has so far been adopted: "The coming years will be more frugal."
One entire decade of reductions. Will Germany be able to stand up to it? But anyway: Is it really necessary? The second question is easier to answer: Not only hypernervous financial markets demand that the government brings down the deficit towards zero. It's also required by the applicable laws: The Basic Law with its "debt brake" – or debt ceiling –- as well as the Euro stability pact stipulate permanently balanced government budgets. Economizing will be the political imperative overshadowing everything.
The first question is the one that's really difficult: Is our society able to withstand such extensive retrenchment of the state? At any rate, illusive will be any radical measures that would suddenly and magically bring about the required consolidation. For example, if the Federal contribution to the statutory pension (80 billion) were cancelled without any replacement, every retired person would have to forego € 4,000 per year on average. Also, a VAT rate of around 30 percent – considered unsocial – is calculated to bring in additional revenue of a comparable magnitude.
Such numbers games clearly show: Simple budget mechanics alone won't solve the problems. The bitter truth is: Germany is a rescue case. This is a new experience for our society – whereas in the business world, it's part of everyday life to face threatening and fateful crises and radical changes of course. Can politics learn from the economy how to rescue and consolidate?
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The government could carry out its duties much more economically – that also applies for its purchasing methods. Public authorities annually spend at least € 360 billion for the procurement of goods and services. At least 10 percent, thus € 36 billion, could be saved with professional purchasing optimizations. This huge efficiency potential has been ascertained – exclusively for manager magazin – by Gerd Kerkhoff, owner of the consultancy firm Kerkhoff Consulting. "These savings are realized solely through volume rebates or better bidding procedures. Legal frameworks would not have to be changed for it", the consultant explains. And he even provides proof that his theoretical calculations also work in political realities – in a recently concluded project with the Landschaftsverband Rheinland (The Rhineland Regional Council). In the project, the association of communities reduced its bidding volume of € 229 millions by about € 25 millions – fully 11 percent, no less.
Significantly higher savings would yet be possible than the "guaranteed one-tenth that's always possible" – if the legal framework were changed towards "economy instead of formalism". Already allowing renegotiations in public biddings would bring an additional 10 percent price reduction.
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BUT EVEN THE MOST BEAUTIFUL rescue plan won't be successful in the end if the timing is not right. The otherwise hopeless coalition government of CDU and FDP did manage that at least. The government's shift towards budget consolidation came late, but at least at the right time: Immediately after the chaotic weekends in spring when the support packages were tied for Greece and the other Euro partners, Chancellor Angela Merkel said goodbye to tax reductions and put the budget meeting on the agenda.
What's even more important: The change in course comes just in time in terms of the economic cycle. Unexpectedly, the German export-heavy economy has been caught in the upswing of newly industrialized countries. Two percent growth are forecast by the new MM indicator for the current year. When, if not now should the government cut back its deficits?
But things seem to get better yet: It currently looks like Germany might profit from the changed capital flows due to the crisis. "We stand good chances to realize a permanently higher growth level", predicts Hans-Werner Sinn, President of the IFO lnstitut (IFO Economic Research Institute). He adds that Germany would be a "winner of this crisis".
A rare historic time frame has opened up: While the crisis showed the population that a change of course is indispensable, a stiff breeze from behind is bringing fresh wind in the sails. Things are possible. It's a mega chance – and somebody should use it. |
