Berlin sidesteps Schäuble’s proclivity for balanced budgets

Capital’s new centre-left government plans creative borrowing to reverse austerity

When it comes to state budgets, it was a tale of two cities this week in Berlin. While others were thinking of Black Friday, Wolfgang Schäuble's obsession as federal finance minister is the "Schwarze Null" – throttling spending for the so-called "black zero" balanced budget.

Germany’s employment rate is at a record high, and the economy is ticking over nicely, but Dr Schäuble delivered a third successive balanced budget this week. Not only that, since 2014 he has pruned Germany’s federal debt mountain by a quarter to €20 billion.

The Bundestag's opposition, Greens and Left Party, suggested ECB president Mario Draghi – and his bank's low interest monetary policy – had done more for Germany's balanced budget than Dr Schäuble.

And, around the corner in Berlin’s state parliament, the local Greens and Left Party have very different plans for the German capital. As junior partners in the incoming city-state government under the Social Democrats (SPD), they have grand plans to reverse a decade of austerity that has left the German capital’s public infrastructure crumbling.



Schools, police and fire stations, and public transport are all to be renovated; 55,000 new public housing units are promised to address a growing housing crisis; and the city wants to employ 1,400 new police officers and 5,000 additional civil servants.

All in all, the new government wants investment to jump from €200 million to €2 billion. To do that, it has to get around the statutory debt brake, a rule introduced in the euro crisis to force balanced budgets. Berlin’s innovative idea: the state government will not borrow itself, but encourage state-controlled utilities to take out low-interest loans with the city as guarantor.

Berlin’s Christian Democrats (CDU), banished to the opposition benches, has warned a debt-fuelled spending spree today will bring a fiscal hangover tomorrow. But the city’s new centre-left coalition is convinced – in true Keynsian style – that only a big public spending push can stimulate the local economy and make the threadbare capital liveable again.

For anyone who thought Germany only did “black-zero” balanced budget austerity, Schäuble-style, Berlin’s new city government and its experiment in off-balance sheet public stimulus, will be worth watching.