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Zuma king of free spenders

AN INSIGHTFUL meeting took place earlier this week in Berlin between four German and French cabinet members, which throws light on Europe’s economic woes and the way out of the deepening morass.

The four were the German and French Ministers of Finance and Economic Affairs, Wolfgang Schäuble, Sigmar Gabriel, Michel Sapin and Emmanuel Macron. The background was the way Berlin and Paris differ in their approach to economics.

In brief, the Germans want a balanced budget above all, with the state spending no more than it receives in revenue. The French have just caused a considerable flutter by openly budgeting for a deficit of 4.3% - more than the 3% European Union rules permit.

Perhaps somewhat tongue in the cheek, Macron proposed that France slash €50bn off its budget, while Germany invests €50bn more into the economy.

Nevertheless, who is right - the frugal Germans, or the spendthrift French?

On the face of it, looking at both economies’ present performance, neither instils much confidence.

On the one hand, the German government recently slashed its growth forecast to a “laggardly” (The Economist’s description) 1.2% for this year and 1.3% for the next. In fact, according to the Bundesbank, the economy barely grew in the third quarter of 2014.

There are even fears that the country, the European economy’s growth engine, may slip into a recession, plunging the whole continent into renewed crisis.

France is faring even worse. The French state statistics bureau, Insee, recently forecast growth of 0.4% for 2014, instead of the 0.7% it expected as late as June.

German Chancellor Angela Merkel approaches the matter like, as she herself puts it, “an average Swabian housewife” who knows that you cannot keep on spending more money than you earn. The French – and Merkel’s critics – contend that you have to invest in order to kickstart the economy.

There is much to be said for both these approaches.

On the one hand, Merkel is right: if you keep on spending more than you earn, sooner or later the mounting debt is going to bite you in a tender spot where you would rather not be bitten. And what's more, you are shoving the problem onto the next generation, who will have to pay back the debts you incurred.

Crumbling German infrastructure

On the other hand, there have been reports about crumbling German infrastructure. A third of all railway bridges, for instance, date from times when the kaiser still ruled the country - in other words, before 1914. Some are so far gone that traffic has to be severely restricted.

In this river-rich country, bridges are extremely important. Together with the famous Autobahns and railways, they form the main arteries and chokepoints of the economy.

Members of the German parliament were recently told that 1 148 bridges need to be replaced, and about 7 000 need urgent renovation. This would cost an extra €30bn, Rüdiger Grube, president of the Deutsche Bahn, told members of parliament.

Given the fact that Germany is at the moment at the magical point of having a balanced budget, this money will have to be borrowed. And there goes your balanced budget.

For Germany, in other words, the choice seems to be between a balanced budget and economic collapse.

Borrowing in a case like this need not be a bad thing. If you are, say, an independent electrician, there is nothing wrong in borrowing the money to buy a van to transport you from job to job, together with your tools. After all, that loan will be an investment to enable you to earn money and pay back the loan.

If our electrician, however, blows the money on a world cruise, that would be very foolish. Spending borrowed money on a scheme likely to engender profit is wise. But don’t use it for luxury or running costs.

To continue this metaphor, the German electrician refuses to invest in a new van and insists on continuing to use the old, decrepit vehicle. In the end, when the old one finally crashes, a new one will cost much more than it would have done earlier.

The French one not only buys a luxury van, but also uses a part of the loan to dine at the Ritz in Paris.

Pulling Zuma's chestnuts out of the fire

What about our own electrician, a man called Jacob Zuma? Zuma buys votes with hand-outs to the poor, keeping them dependent; he spends millions of state money on his own luxury palace, and allows his political friends to throw large amounts away on schemes which benefit them, but are unprofitable to the community.

At the same time he neglects to put straight our deficient schools. He makes the right noises about corruption, but doesn’t do anything about it.

If the Germans accuse the French of being spendthrifts, they know nothing. Our own government is the king of free spenders.

The problem is that sooner or later - and sooner rather than later - we ordinary people will be called on to pull the financial chestnuts out of the fire. We will have to foot the bill.

 - Fin24

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.

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