Ahead of a summit on the growing cost of living crisis, Federal Finance Minister Christian Lindner has warned that war, inflation and supply chain problems are combining to create a very real risk of an economic crisis. While the government is considering several measures to ease the situation, Lindner said that people should still expect a time of scarcity. 

Risk of economic crisis very real, says German Finance Minister

“There is a risk of an economic crisis that has to be taken very seriously due to the sharp rise in energy prices, the supply chain problems and inflation,” he told ZDF Today Journal on Wednesday. “My concern is that in a few weeks and months we could have a very worrying situation, and this situation we can’t be choosy. It’s about three to four, maybe five years of scarcity, and we have to find an answer for that.” 

With the heads of Germany’s ruling traffic light coalition meeting on Wednesday to discuss the details of Chancellor Olaf Scholz’s promise of “concerted action” to get the price increases under control, especially for food, gas and energy, Lindner said that all options remain on the table. “There must be no taboos when it comes to controlling price developments for people,” he emphasised. 

Should Germany prolong life of nuclear power plants?

In keeping with this attitude, the current crisis - which has been heightened by Russia significantly reducing gas deliveries to Germany last week - has rekindled the debate about extending the service lives of Germany’s remaining nuclear power plants. 

At the beginning of the year, three plants were closed, with the final three scheduled to cease operations at the end of this year, but the FDP is calling for the nuclear phase-out schedule to be prolonged to take the pressure off. The SPD and Greens are against this policy, and Economics Minister Robert Habeck has recently called for coal power plants to be fired up in the meantime. 

Tax-free allowance could be increased, says DGB

On top of this, the German Trade Union (DGB) has called for the basic allowance for income tax to be increased to at least 12.800 euros. “In such a time of crisis, wage policy alone cannot be burdened with preventing losses in purchasing power and cushioning social hardship,” said boss Yasmin Fahimi. The DGB also called for a price cap on basic essentials like electricity and gas. 

However, Federal Minister for Social Affairs Hubertus Heil warned that the state cannot compensate everyone for everything. “I don’t see any scope to relieve people who [already] have a very high income,” he said to Stern, adding that he would prefer to secure targeted relief for middle- and low-income households. 

Making savings, or taking on new debt

Meanwhile, the deputy leader of the CDU, Andreas Jung, has proposed that the federal, state and local governments should lead by example when it comes to savings, with public buildings becoming role models on saving gas and electricity used for cooling, heating and lighting. 

There has also been some speculation that the government might once again suspend its commitment to a balanced budget - a policy which forbids the government from taking on additional debt, known as the “black zero”, which was previously temporarily abandoned during the coronavirus crisis - to help the country weather this storm. 

However, the Taxpayers’ Association and the Federal Association of Medium-Sized Businesses have warned the coalition against making such a move, describing it as not just a political symbol but an “expression of fair coexistence between the generations and a sustainable budgetary policy.” Instead, Reiner Holznagel of the Taxpayers’ Association called on the coalition to cut superfluous, ineffective and climate-damaging subsidies and spending.