Controversy raged last month over whether the German government was following the same economic approach as Gordon Brown or not. German SPD finance minsiter, Peer Steinbrueck, memorably remarked that Brown was introducing "crass Keynesianism" and that on Brown's VAT cut, "all this will do is raise Britain’s debt to a level that will take a whole generation to work off." CDU/CSU budget spokesman Steffen Kampeter, Angela Merkel's right-hand man on the budget, went even further, calling Brown's approach "a complete failure of Labour policy".
Today, Brown has been meeting Merkel in Berlin. The German Government has this week outlined a further fiscal stimulus package. Brown's people are claiming that the Germans have now been converted to his approach of borrow and spend.
Having gone through the entire document agreed by the German coalition partners, I can tell ConHome readers that nothing could be further from the truth.
The main element of the German package is a €100 billion package (a rather large £100 billion, since Brown's devaluation of the pound) of loan credits and state guarantees. This is being pitched especially at larger companies, and looks remakably similar to the measures proposed repeatedly by George Osborne in recent months, and now partly and belatedly copied by Brown.
Other elements include a reduction in the lowest tax bracket from 15% to 14%, an increase in tax allowances, a green incentive on scrapping old cars in favour of newer, more environmentally-friendly models, healthcare cost reductions, and a one-off payment to families of €100 per child.
All told, the whole package sounds much more like a package that could be proposed by us at a coming General Election, than any Labour approach. There is notably no VAT cut, no further bank recapitalisations, and other hallmarks of the Brown approach.
But what really differentiates the German package from the Brown approach is the starting point Germany finds itself in. It has almost balanced the budget in recent years, especially since Angela Merkel came to power in 2005. The Germans did fix the roof while the sun was shining. Whilst Brown's deficit is projected to reach a massive 8% in coming years, the German government in its package is committing itself in the future to a constitutional provision that the deficit will not exceed ONE HALF of one per cent.
The German document criticises the reckless borrowing programmes of other countries. "Germany is fundamentally strong and healthy. We go into the coming times with more room for manouvre than many other countries." Who could imagine even Gordon Brown having the gall to propose that "we want to come out of this crisis stronger than when we went into it."
On debt, the Germans are serious about being prudent with their public finances. Like David Cameron, they see a moral obligation to future generations, with their talk of "Generationengerechtigkeit" (or "justice between the generations"): "constantly rising interest costs would therefore be a difficult mortgage on our children and our grandchildren."
So beware any talk from Brown that the Germans are now following his path. Their package of measures is very different, and they are able to operate from a starting position of fiscal strength.
