In the past, during his time as an opposition politician, Christian Lindner was a man of clear statements with words as sharp as swords. Now, as Federal Minister of Finance, he no longer wields the sharp blades. When the Vice Chancellor appeared in front of the cameras in the “Grandhotel” on the Petersberg near Bonn on Thursday, he talked about one of the “greatest economic risks”: inflation.
Because he does not want to ask the European Central Bank (ECB) at the meeting of the G-7 finance ministers to finally raise interest rates, Lindner speaks of “clear statements and also clear decisions”, which he would like. Two percent is the magnitude of the price increase, to which one must return soon. A finance minister shouldn’t say much more if he doesn’t want to violate the independence of the central bank. But not less either.
Politics in times of war and inflation is more than ever a matter of communication – verbal and non-verbal. Big problems sometimes call for the right words and gestures. At least two of the leaders of the traffic light coalition, FDP leader Lindner and, to a greater extent, Chancellor Olaf Scholz (SPD), are having a hard time with this challenge.
Very different from the competition in this government – Robert Habeck and Annalena Baerbock from the Greens. This is reflected in recent polls. The Greens overtake the SPD and leave the Liberals far behind. Habeck, Economics Minister and also Vice Chancellor, shows how it works when he is tormented by the needs of the German energy supply.
No one is currently suffering as telegenic in front of cameras as the Green politician, torn by doubts. The foreign minister, on the other hand, has been speaking such emotional language since Russia’s attack on Ukraine that even the delivery of heavy weapons to Kyiv has not affected voter approval.
War and peace. The Greens conduct world politics, the others are judged on whether they can control inflation. Two lost state elections in May with high losses – one in Schleswig-Holstein, the other in North Rhine-Westphalia – are enough of a message for the FDP and SPD. According to a survey by the management consultancy McKinsey, almost one in three fears for their lifestyle in the face of rising prices. The Liberals, on the other hand, are now worried that they could be thrown out of parliament in the next federal election if they don’t get the problem under control quickly.
Critics within the party are already complaining that the finance ministry was the wrong department – once again. Just like in the coalition with the Union in 2009, when the then party leader Guido Westerwelle opted for the foreign office, but never really gained a foothold there in the public eye. As a result, the FDP had to join the extra-parliamentary opposition. “In the end, it’s not the ministry,” says one coalition politician about these discussions, “but the ability to shine.”
The Liberals underestimated the issue of inflation. “Where is Mister Economy of the FDP?” It says in a large business association. One who explains to companies and the population what the right course is at this time. The inflation rate is at its highest level in 41 years. And the ECB, as the master of monetary policy, is reluctant to raise interest rates under its boss Christine Lagarde, although it is most likely in its power to interrupt the threatening price spiral. From the FDP but only restrained words.
Instead, high electricity and food prices are eating away at the wallets of parts of the population. Even the measures decided by the Bundestag on Thursday do little to change that. The nine-euro ticket for three months of use of local public transport, the reduced taxes on petrol and diesel. All just a drop in the ocean. At the latest when the ancillary cost bills for living come in the coming year, it will be bitter for many. And the bad thing about it: Fiscal policy has few instruments to get the price increase under control.
On the contrary, almost anything Lindner, Scholz and the others could do to protect citizens from rising costs will ultimately fuel inflation. A price cap on electricity and gas? A VAT reduction for staple foods? The reduced taxes on fuel? This drives demand and thus prices.
There is really only one thing a finance minister can do in this situation: spend less so government-subsidized demand doesn’t fuel inflation. For the promotion of e-cars, for example, which Lindner considers “absolutely oversized”. Billions of taxpayers’ money for the energetic refurbishment of new buildings, which drives building prices immeasurably. A favorite project of Habeck. The amounts requested by him are missing from the 2022 budget. The details of Lindner’s financial policy show where the cracks lie in a coalition that was forged in better times and with different goals.
Fewer subsidies – that is, fewer financial transfers to the population – are not popular. Not even with the other parties in the red-green-yellow federal government. Lindner, according to one of the coalition, should explain to the cameras, like Habeck with tousled hair and a furrowed face, why thrift would be the right way to go in certain areas.
He’s got the repertoire. “In times like these, good economic policy is not about constantly inventing new subsidies and promoting everything that is desirable with state money,” says Lindner. But he also knows that it would be risky to preach thrift now. He wants to avoid yellow vest protests like those in France. Especially since his coalition partners will not support this policy anyway.
In any case, the finance minister does not get any help from the Union: “The relief packages come much too late,” complained CSU General Secretary Martin Huber in an interview with WELT AM SONNTAG. His criticism is that it is not accurate and, above all, not sufficient. Huber calls for relief on a large scale: “It would now be more important for citizens to reduce VAT and, above all, to relieve pensioners and students, and to dynamically increase the commuter allowance when fuel prices have risen.” Seniors are facing the largest pension increase in decades .
At least the Union knows how politics works. “While US President Joe Biden has made combating inflation one of his top issues, the Chancellor doesn’t even mention the word inflation,” criticized Union Vice President Jens Spahn (CDU). “In the short term, we need further relief for citizens, including income tax, keyword cold progression.” It would be poison to launch one of the debt-financed programs to boost demand. “That fuels inflation even further,” says Spahn.
So the line that the government is walking is a narrow one. And when the heating season starts in autumn with rising energy prices, it gets even narrower. “We have to fear that this is just the beginning,” says the deputy leader of the SPD parliamentary group, Matthias Miersch. “Therefore, we have to ensure that energy, food and rent remain affordable for everyone. In doing so, we cannot allow ourselves any bans on thinking.”
No bans on thinking? When push comes to shove, a lot of things in this coalition don’t go together: “I’m afraid that the government will always choose the latter when it weighs up getting inflation under control on the one hand and compensating for the population’s loss of purchasing power on the other.” , says a senior coalition politician. “And because every interest group is then served by politicians, you push inflation even further.” There is no political majority for unpopular measures that stop inflation.
For Christian Lindner, the man who promised the Germans economic and financial sense before the election, that’s no prospect. Neither did Olaf Scholz, his predecessor in office.