INFRASTRUCTURE SPENDING Coalition Split on Whether to Splurge or Save

Germany's budget is in better shape than expected, and the Social Democrats say the government should use it to improve the country's creaking digital infrastructure but finance minister Wolfgang Schäuble disagrees.
Quelle: dpa
The government is split on the need to update the country's creaking infrastructure.
(Source: dpa)

A better than expected budget surplus this week reignited a debate about investment into Germany’s creaking digital infrastructure.

After a tumultuous year, where Germany had to spend more than it planned on refugees and domestic security, it still had €6.2 billion ($6.6 billion) carried over from Germany’s national budget for 2016

The governing Christian Democrats believe that the surplus should be used to slash Germany’s national debt, but their coalition partners, toe Social Democrats want the unexpected windfall to be used to modernize the country’s less than superfast digital infrastructure.

This led, on Wednesday, to the Social Democrats lodging a provisional veto against the Christian Democrats plans to use the cash to reduce government debt.

As the dispute threatens to escalate, finance secretary Jens Spahn, from the Christian Democrats, warned that a hole in the country’s budget for 2018 of around €5 billion urgently needs filling.

Unlike many Far Eastern countries, such as South Korea, which have invested heavily in building an ultra-fast broadband network using glass-fiber technology, Germany’s telecommunications network is still largely reliant on old-fashioned copper cables to connect households with the internet, particularly when it comes to the “final kilometer” of cable between a local exchange and a home or business.

 

The government’s net investment has been negative for years and it is simply allowing existing infrastructure to deteriorate. Peter Bofinger, German Council of Economic Experts

Germany’s current average broadband connection speed of 11.5 megabits per second is less than a third of world leader South Korea, where the average connection speed is 26mps and where peak connections often exceed 100mps.

Compared with other parts of Europe, particularly the Scandinavian countries, Germany’s broadband speeds are also relatively slow. In Sweden, for example, the average connection speed is 19mps while Norwegians enjoy average connections of 18.8mps, the Dutch 17mps while Latvians, Swiss, Finns and Danes all have average speeds of more than 16mps.

Economics Minister and Social Democrat party leader Sigmar Gabriel believes that the federal government’s current plan to achieve nationwide broadband coverage with a minimum speed of at least 50mps by 2018 is not ambitious enough.

He wants the cash to be channeled into a new “Future Investment Fund” which would aim to dramatically improve Germany’s digital infrastructure by 2020 through the nationwide expansion of glass fiber networks – which allow far higher transmission speeds than copper cables.

Mr. Gabriel wanted this in Germany as part of a E.U.-wide project to improve telecommunications across the region over the next decade.

But the Christian Democrat finance minister Wolfgang Schäuble believes it makes little sense to earmark last year’s budget surplus towards capital spending as states and municipalities across Germany last year failed to make use of billions of euros of available funds because of planning constraints. So what use is there in making more funds available?

In addition, Mr. Spahn says that a national shortage of civil engineers means that, even if planning capacity were speeded up, it would be years before big projects were shovel-ready. For that reason, using a one-off surplus from last year’s budget to increase short-term infrastructure investment makes little sense.

But the Social Democrats argue that the reason for recent under spending by regional and local authorities is that the Christian Democrat obsession with slimming down the state over the past decade means that there is not enough administrative capacity in town halls around the country to meet demand for planning applications.

“Anyone who argues that we do not need the money because we cannot spend it anyway is only telling half the truth,” a spokesman for the economics ministry said. The ministry is also calling for increased planning capacity for construction projects.

Many prominent economists agree with the Social Democrat’s call for increased infrastructure investment on the country’s autobahns, railways and telecommunications.

Peter Bofinger, a member of the German Council of Economic Experts, said: “The government’s net investment has been negative for years and it is simply allowing existing infrastructure to deteriorate.”

Jens Jensen-Hogref, a researcher at the Kiel Institute for the World Economy or IfW, said that, despite rising public investment generally, public capital stocks are still losing value.

In the medium to long-term, he believes, much higher investment will be necessary, particularly in poorer areas of Germany.

The dispute over how last year’s budget surplus is used will have to be settled within the next week, otherwise the €6.2 billion will, by default, be diverted to the government’s reserve fund for refugees, which would then grow to €18 billion.

 

Martin Greive is a correspondent for Handelsblatt based in Berlin. Donata Riedel covers economic policy for Handelsblatt. Klaus Stratmann is deputy chief of Handelsblatt's political desk in Berlin. To contact the authors: [email protected] [email protected] and s[email protected]