Fiscal rules entail a fundamental trade-off between enforceability and flexibility. In a recently published article, German Finance Minister Christian Lindner seems to be concerned solemnly with commitment without acknowledging that there exists a trade-off at all. Because he fears that public debt levels will become a ‘subject of political negotiation’, he calls for better enforcement by an one-size-fits all rule to ensure ‘sufficient debt reduction each year’.

Common fiscal rules have to ensure a rapid and sufficient reduction of deficits and high debt ratios, while allowing for necessary public and private investment. Improving the quality of public finances by prioritising spending remains key. To live up to these goals, the reference values of 3 per cent of gross domestic product for the deficit ratio, first set out in the Maastricht treaty, and 60 per cent of GDP for the debt ratio must remain untouched. The excessive deficit procedure in the event of a breach of the 3 per cent deficit criterion has been our most effective enforcement tool in the past. It must not change. […]

In addition, safeguard provisions to ensure an actual decrease in debt ratios exceeding the Maastricht reference values in each year are needed. We also need further measures to ensure compliance by member states, as well as less discretion in the interpretation and application of the rules.

Taking this phrasing seriously, proposal seems to ignore problems of pro-cyclical fiscal policies and political constraints, as pointed out by Sander Tordoir.

Budget policy is at the heart of democracy: you cannot wish politics away. Wolfgang Schäuble, the former German fin minister who was also a staunch proponent of tight fiscal policy, backed out of sanctioning Spain and Portugal in 2016 because he worried about political stability

— Sander Tordoir (@SanderTordoir) April 25, 2023

Moreover, as Olivier Blanchard and Jeromin Zettelmeyer write in a recent report, the German proposal does address the main problem of Commission’s proposal: transparency of and common rules for the debt sustainability analysis (DSA) framework. Whereas Germany seems to regard DSAs as a ‘beast that cannot be tamed and thus must be kept in a cage’, Blanchard and Zettelmeyer underline the strength of DSAs to ‘identify debt risks and adjustment needs’. Hence, they propose transparent rules for the framework to tame the beast:

But DSAs do not bite, and they certainly can be tamed. Rather than going back to simple numerical rules, the German government – and the Commission – should focus on implementing the Council conclusion that “the Commission trajectory should be based on a common methodology to be agreed that is replicable, predictable and transparent, and should include an analysis of public debt and economic challenges.”

In his article, Linder seems to threaten the reform:

Reform of the Stability and Growth Pact cannot be an end in itself. It is only acceptable if we make significant improvements to the framework. Otherwise, changing the rules would not be advisable.

As Blanchard and Zettelmeyer argue, this ‘would be dangerous for the future, and a major blow to the construction of the EU, and must be avoided at all costs’.

Five Proposals for enforceable EU Fiscal Rules – Policy Brief
Sander Tordoir , Jasper van Dijk, Vinzenz Ziesemer, CER, 17.04.2023
The EU’s fiscal rules, which constrain member-states’ budget policies, are in desperate need of reform. They are too complicated, impose unrealistic demands on some countries, and lead to government overspending in economic booms and underspending in recessions. Member-states have only met the rules around half the time they were in force.

CDU is Preparing a Radical Tax Reform – Article (Paywall, German)
Manfred Schäfers, FAZ, 17.04.2023
Top earners should pay more, so that the middle class benefits. The tax reform plans of the CDU also contain new rules for the inheritance tax.

Where Are The Unions? – Article
Rana Foroohar, Financial Times, 17.04.2023
Joe Biden’s Inflation Reduction Act provides opportunities for labour on both sides of the Atlantic to work together.

Eradicating long-term unemployment – Article
Laurent Grandguillaume & Niels Planel, Social Europe, 17.04.2023
Social enterprises can offer the long-term unemployed an exit from the vicious circle of inactivity, France is showing.

Marcel Fratzscher about the German Industrial Policy: „I think that is wrong” – Interview (Paywall, German)
Julian Olk, Handelsblatt, 13.04.2023
The President of the German Economic Policy Institute Roasts the German Government. He advises against drastic consequences of the planned revival of industrial policy.

Illusions of Decontrol – Article
Uwe Fuhrmann, Phenomenal World, 12.04.2023
The myth of Germany’s “social market economy”.

Is Economics Self-Correcting? – Article
Robert Kuttner, The American Prospect, 07.04.2023
There are more economists doing useful real-world work. But the closer you get to the pinnacle of the profession, the less has changed.

Although market advocates like to emphasise the role of competition, capitalism tends to produce monopolies. As a new report from the Global Justice Network shows, huge corporations with immense power dominate the global economy by circumventing laws and taxes and exerting influence over governments.

In 2021, the combined income of the top 500 firms exceeded $3 trillion, equivalent to nearly 40% of the world economy. The concentration of wealth and power in the hands of a few corporations is driving inequality, stifling innovation, and undermining democracy.The rules of the global economy, often designed by the very corporations that benefit from them, perpetuate this cycle of corporate power and wealth accumulation. Monopoly capitalism not only drives higher prices but also shifts power away from the public interest, and hinders efforts to address pressing issues like climate change. Reclaiming, breaking, decentralizing, and dispersing corporate power is crucial for achieving democratic decisions that benefit the majority and promote a fair and just global economy.

Read the whole report Monopoly Capitalism here.

Germany does not need a turnaround in supply policy – Article (German)
Achim Truger, WSI Mitteilungen
Deep economic crises, such as those caused by the Corona pandemic and the energy crisis, are bad times for market liberals and regulatory politicians, who traditionally speak out against state interference in the economy and in favour of a lean state.

The Myth at the Heart of Modern Economics – Interview
Seth Ackerman in interview with James Forder, Jacobin, 10.04.2023
A fabricated story about the causes of 1970s inflation — repeated in high school textbooks and the New York Times — plays a surprisingly important role in shaping economics today. It may well have helped spur the Fed’s ongoing campaign to engineer a recession.

In Search of a New Political Economy – Article
Daron Acemoglu, Project Syndicate, 07.04.2023
The late-twentieth-century assumption that democracy and markets would ultimately triumph everywhere has since been met by an intellectual backlash that is even more wrong-headed. To chart a better path forward, we will need to revise our thinking in several policy domains at once.

Bundeskartellamt Gains More Power Than Ever Before – Article (German, Paywall)
Martin Greive & Julian Olk, Handelsblatt, 04.04.2023
Der Minister hat sich mit seinen Kabinettskollegen Lindner und Buschmann auf eine grundlegende Reform des Wettbewerbsrechts geeinigt – inklusive Zerschlagungen. Der Protest der Wirtschaft ist massiv.

Banking Regulation Has Failed – Essay (German, Paywall)
Meike Schreiber, Süddeutsche Zeitung, 02.04.2023
The emergency takeover of Credit Suisse and the collapse of several US regional banks show: The banking system is still far too fragile 15 years after the financial crisis. Now it needs completely new approaches.

How Profits Fuel Inflation – Article (German, Paywall)
Christian Siedenbiebel, FAZ, 29.03.2023
Pandemic, Ukraine war, energy shock – all contributed to inflation. But do higher corporate margins also play a role? The ECB ventures into the topic.

The general welfarist argument against inequality requires interpersonal welfare comparisons and is grounded on the assumption of a single decreasing marginal utility function. In this case, taking one euro from a rich person and giving it to a poor one increases social welfare, because the welfare gain is larger than the loss.

In a recent blog post, Branko Milanovic gives three reasons why we should care about inequality even without the necessity of interpersonal well-being comparisons (which are controversial):

Read the whole piece here.

How to tackle inequality? One interesting idea about taxing the rich is coming from the Patriotic Millionaires, an US organisation of millionaires who want to pay more taxes. Read an interview (German) with their chair Morris Pearl about a wealth tax that automatically rises and falls with the level of inequality here.