Abstract

New Borrowing of Regional Authorities in 1975

Public budgets in the Federal Republic of Germany will show a deficit of the order of DM 50 to 60 thousand mill. in 1975. Of the related borrowings, only about DM 20,000 mill. are due to the cyclical situation (DM 5,000 mill. more expenditures and DM. 15,000 mill. less revenue); an amount of DM 30 to 40 thousand mill. must be regarded as a structural budget deficit. The latter will persist when there is a renewed upswing, unless incisive, spending and revenue policy action is taken. To begin with, this contribution analyses the probable deficit with the instruments of the cyclically neutral budget developed by the Council of Experts. To establish a link with past developments, to start with the configuration in 1974 is described; the question is then posed of what cyclical impetus will be imparted by the probable 1975 deficit and how its should be judged. In the light of the given eyclical situation, a positive assessment of the expansive effectsis arrived at. The effects to be expected from the structural budgetary disequilibrium following a revival of economic activity are then examined against the background of developments in the last two growth cycles within the framework of a monetary analysis. In this connection special emphasis is placed on the configuration in the 1966/67 recession and the ensuing renewed upswing. The study arrives first and foremost at a confirmation of the results obtained with theinstruments of the cyclically neutral budget, thatis, the finding thatit will be possible to finance the public deficitin 1975 without any particular strain on the money and capital markets, since on the one hand not only the formation of money wealth by private households, but - despite declining profits - also that of firms will increase, while the borrowing of the housing industry and the entrepreneurial sector will remain very low. On the other hand, in the event of a cyclical upswing, a substantial increase in the borrowings of the entrepreneurial sector, a not inconsiderable increasein consumer credits and renewed: larger borrowings of the housing industry - although they will not reach the same figure as in 1973 - must be expected. Over and above this,in theinterests of the export surplus and of avoiding a rise in the exchange rates, substantial funds will have to be made available for capital exports. The leeway left for public loans will accordingly be small. If the structural deficitis not considerably reduced, either rapid acceleration of the inflation rate or - if the central bank does not try to avoid it by an appropriate restrictive course - an early stop to the upswing must be reckoned with.