New debt and Corona: in praise of the debt

There were revolutionary cash injections in 2020. Markets can only exist if the state protects them. How the neoliberal rule ended.

Then it comes rolling in, the wave of money Foto: Viaframe/getty

BERLIN taz | The corona crisis has its advantages. It is likely to bury the neoliberal ideology that has dominated the Western world since 1980. The market radicals are now just a small group fighting a losing battle. Because the corona crisis shows that the “free market” is a fiction. Markets can only exist if the state supports them.

The ups and downs of the DAX share index are a lesson: When it became clear in the spring that the corona pandemic would spread from China to Europe, German stock market prices collapsed by almost 40 percent – and they would have fallen even further if the “free Market ”.

The DAX has only recovered because the German government is investing around 500 billion euros in corona aid. The “black zero” is no longer a mantra, instead debts are incurred in order to stimulate the economy – and everyone immediately experiences how powerful and capable the state is.

Neoliberals have always spread the myth that the state would only disrupt and that national debt in particular is extremely dangerous: interest rates would rise and inflation would be inevitable. Reality proves otherwise. The Federal Republic even pays negative interest, so that the state receives money for free when it takes out loans. An inflation is nowhere in sight, instead prices are falling. In November inflation was minus 0.3 percent.

Debts like they haven’t been since 1945

But it is not only states that are now running into debts that have not been seen since the Second World War. The EU Commission is also allowed to take out loans for the first time and to support those member countries that were hardest hit by Corona with 750 billion euros. This is downright revolutionary. Until now, Brussels was only allowed to manage what the member states paid in contributions. But now there are corona bonds, even if they are not called that.

Chancellor Merkel is finally learning from European politician Helmut Kohl. She lets “Bimbes” jump to save the European project. It is not only ready to accept European corona bonds. It even allowed Germany to become a net contributor and contribute far more money to the EU reconstruction fund than it receives. The difference will be around 52.3 billion euros. Before Corona it would have been unthinkable that Germany would show such solidarity.

However, the Federal Republic also pursues its own interests if it is generous. Germany is crushing its neighbors with its export surpluses. This imbalance was exacerbated by Corona because many EU countries are not rich enough to support their businesses.

Distortion of competition?

EU competition commissioner Vestager raised the alarm early on: half of all applications for business aid came from Germany, which was a “distortion of competition”. Vestager was not exaggerating. The danger is enormous that German companies in particular will survive the crisis – and then roll up the EU internal market. At first glance, it may seem pleasant when you compete with your neighbors in the ground. Neoliberals still believe in the competition between nations to this day. But this egoism would be short-sighted: The others can only buy German goods if they too have an income. Europe becomes richer together, not divided.

So the neoliberals are on the retreat. But you shouldn’t rejoice too soon. Their defeat is not yet decided, as the financial crisis from 2008 shows. You will remember: Back then, the banks had given out trillions of bad loans. In order to avoid global chaos, the states also got into debt back then and supported the economy. But as soon as the crisis was over, the neoliberals began a breathtaking volte: It was simply pretended that the states had taken out loans without restraint – the responsibility of the banks was pushed aside. In order to resolve this alleged “national debt crisis”, a “debt brake” was even anchored in the Basic Law in 2009. It could get tricky now because it demands that the loans from Corona times be repaid over the next twenty years.

At first glance it may sound obvious that the state should pay off its debts. Eventually, when a family takes out a mortgage to buy a house, they have to pay off that loan too. Still, it would be fatal to compare the state with its citizens. Because the German state could only repay its loans if it increased taxes.

But as soon as the citizens had to transfer more money to the tax office, they would have less means to consume. Demand would collapse, which then led to an economic downturn. The corona crisis would extend endlessly. States are not normal citizens. Instead of paying back their debts, they are betting that the loans will slowly become meaningless – as the economy grows again. This procedure is easy to understand; only neoliberals find it difficult.

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