Filenews 28 February 2022 - by Michalis Persianis
The war forced the Germans out of their shells and take on the role they owe – not only in European defence, but also in the twin issue of energy security and the environment.
The total reversal of history, which as we all know is not repeating itself but rhyming, was recorded last week by the announcement that Germany will help with the flow of refugees from Poland to its territory. In Europe's previous generalized war, the flows of "refugees" were taking place in the opposite direction in the context of one of the worst acts of humanity, which industrialized death and genocide.
The German Chancellor's statements to the Bundestag last Sunday were the most important historical development brought about by the War in Ukraine - at least until the same afternoon when Vladimir Putin mobilised his nuclear arsenal.
Mr. Schultz proclaimed the beginning of a "new era" on five points, with which Europe's largest economy finally recognises the reality facing Europe. Germany is now returning to the heart of Europe, in a way that smells less imposing than it has been to date, and which makes it a one-way street to strengthen European cooperation at all levels.
In the military, where Schultz made nominal reference to France and to military programmes such as Eurodrone and Eurofighter, he awakened the dormant project of European defence cooperation, and even ordering missions beyond those of the Petersberg type.
Equally important, however, was the fact that the Social Democrat Chancellor announced a substantial reversal in the country's fiscal approach that reflects the principles of austerity as much as anyone. The €100 billion is not enough. The euro he announced to strengthen Germany's defence armour was more than even the end of Germany's post-war military policy, 77 years after the Soviets entered the Reichstag.
With the doubling of defence spending, estimated at €47 billion, it is not enough. or 1.53% of GDP for 2021, to "more than 2%", Germany now recognises that prudence and prudence are not synonymous with austerity.
In fact, the Germans now recognise that the challenges ahead of us - on the one hand, energy security and environmental challenge and, on the other hand, the geostrategic threat to Europe - need costs, and high ones at that. And, deep down are the other challenges – refugee, digital transition and Europe's role in the world.
Mr Schultz announced, indirectly, the increase in Germany's debt and deficit. The deficit will clearly be higher than the estimated 3.25% of 2021, which was even preceded by 7.25% of 2021 and the Pandemic. At the same time, public debt, which in Germany is almost exclusively due to the central government, will increase from last year's 72.25% of GDP - a low rate for most people, but high for German attitudes.
This is because, in addition to increasing defence spending, it also announced major investments in the Green Transition, an agenda with an environmental character, but directly linked to energy security. The LNG plants will be funded from this year's budget, as will the forecasts for future conversion into hydrogen plants. At the same time, however, the German Government will increase gas reserves for autonomy purposes and accelerate the adoption of renewable sources.
Putin's threat is greening Germany.
The compensatory measures that the German Government is forced to take, with the subsidy of heating gas, the subsidies for low-income households and workers who do not live near their workplace, will also have a budgetary impact. This expenditure will be fiscally prudent and targeted, in contrast to the unwise horizontal measures that we have seen, for example, in Cyprus, but will have a significant cost, which has not yet been calculated.
The general picture that emerges is that the Germans now recognize that challenges need large expenditures to be met. Fortunately for all of us, they do not abandon the approach that Cyprus should adopt, that high costs and an unwise policy should not be considered the same. They remain measured, judging by the statements of technocrats and officials that followed Mr Schulz's Sunday address.
It is to be expected that this approach will also influence for the better the debate on the revision of fiscal rules in Europe, which is still on the table, despite the even more serious issue that Putin is raising in Ukraine. However, Germany has been forced to approach the French position, and this is important, especially although Cyprus has read these developments carefully.
Surely the priority remains on security issues, especially as long as Russia's nuclear arsenal is on alert and the human drama continues in Ukraine. However, the logic that high costs are sometimes even legitimate must be recognized, always with the strictest condition that they remain targeted, specific, prudent and aimed at the long-term benefit of the country. We will not follow the Germans' defence spending, but we can and must follow their approach to energy security and environmental investments – above all, with targeted and considered measures and decisions.
Chairman of the Fiscal Board
