Will Berlin's Debt-Bomb Explode?

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Dec 7, 2022, 4:39:37 AM12/7/22
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Will Berlin's Debt-Bomb Explode?


by Tyler Durden

Tuesday, Dec 06, 2022


Authored by John Cody via Remix News

https://rmx.news/commentary/will-berlins-debt-bomb-explode/

Berlin is known for some of the most generous social
programs in the entire country, and many hold the German
capital up as an example of progressive policies that should
be implemented elsewhere. However, there are some major
catches.

For one, Berlin benefits from wealthier areas of Germany,
with taxpayer money funneled into Berlin at the expense of
states like Hessen or Bavaria. In fact, Bavaria alone pays
up to €9 billion into the state fiscal equalization scheme,
while Berlin takes in €3.6 billion. These payments are
partially related to Berlin and other Eastern German states’
economic setback following the end of communism, which
served as a major economic shock to the east of Germany at
the time.

This money, in part, helps Berlin afford free daycare and
schools along with free school lunches. “Afford” is a term
used loosely though, as the city is currently sitting on a
time bomb of debt amounting to €66 billion, with few signs
of this debt slowing. From 2019 to 2021, the total debt
level rose €8.3 billion, moving up 13 percent.

https://assets.zerohedge.com/s3fs-public/styles/inline_image_mobile/public/inline-images/2022-12-05_14-28-30.jpg?itok=pbS5mjTb

Berlin’s detractors point out that the “luxuries” the city
enjoys, such as free day care, can only be dreamed of in
other states in Germany, even if the residents of those
states are paying for Berlin’s “free lunch.”

Berlin’s public transportation ticket is also the most
generous subsidized transportation ticket in Germany. It
still costs only €9 for the poor and €29 a month for
everyone else. The cost will be subsidized by a relief
package worth €3 billion, with the package also offering
protection against tenants being evicted and an extra energy
allowance.

“Berlin was the first federal state to decide on a
comprehensive €3 billion relief package, including: €29
ticket for everyone, €9 euro ticket for the poor,
termination and rent freezes for municipal tenants, further
energy aid, and insolvency protection for business,” wrote
Julius Betschka, who works for Germany’s Tagesspiegel.

However, the response from the Dr. Peter Tauber, a former
parliamentary state secretary and Christian Democratic Union
(CDU) member, said wryly that the “Hessians will be happy to
pay…”

Bezahlen die Hessen sicher gerne…
— Dr. Peter Tauber (@petertauber) November 14, 2022

https://twitter.com/petertauber/status/1592250439969681408


Berlin’s mayor, Franziska Giffey, has responded to claims
from other cities by saying that they are simply “envious”
of Berlin’s generous programs.

“Sounds like (they) envy Berlin! Hesse could have launched
such a relief package,” responded Giffey. She argues that
her city is growing faster than Bavaria, and larger tax
receipts due to inflation mean the city is giving back to ts
residents.

On a per capita basis, Berlin is the most indebted state in
all of Germany, amounting to €17,000 per person, whereas the
rest of Germany only has €7,700 on average. Berlin had made
some progress in paying off its debts; for example, in 2018,
it debt fell below €60 billion for the first time in years,
but Covid-19 and the current war in Ukraine, have only led
to a massive increase in debt since then.

It should also be noted that Berlin’s argument that being an
eastern city is the basis for its massive debt levels does
not entirely hold up to scrutiny. Dresden, for instance,
located in Saxony, featured the lowest debt levels of any
German city in the entire country, both east and west,
amounting to only €1,478 per person.



In Berlin’s defense

Those defending Berlin’s programs point to their widely
shared social benefit. Unlike spending on military, opera
houses, or film projects, the introduction of free day care
and school lunches widely benefits the entire population,
encourages family formation, and gives residents concrete
examples of how their taxes are being put to work, even if
those taxes are partly a transfer of wealth from other,
wealthier German states.

Nevertheless, Berlin’s debt problems are not going away, and
as tensions grows over rising inflation and energy prices,
the city’s generous social programs may attract more
criticism.

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