• Date 16 May 2021

Il Sole 24 Ore: The pandemic crisis is one of the toughest challenges for Germany since the post-war period. As finance minister, you have responded with unprecedented measures and interventions. What objectives, what criteria have guided your choices in such exceptional times?

Olaf Scholz: Indeed, we all look back upon challenging months. Public budgets have been hit hard by the pandemic. Right from the beginning of the pandemic, we have focused our financial power on the fight against the pandemic and on support for businesses, workers and families. And we continue to do so. The provisions and measures of the public budgets for 2021 amount to around €248 billion as of 24 March 2021, which is about 7% of GDP.

Last year, we took budgetary measures totalling around €314.7 billion to combat the pandemic. This corresponds to about 9.4% of our GDP. The debt level has risen to 69.8% of GDP. This shows that despite the coronavirus pandemic, our country is in a sound fiscal position. Our national budget remains sustainable. The general government “Maastricht” debt ratio is expected to be around 74½ percent of GDP at the end of this year – and it is expected to decrease in the years to come.

Moreover, we plan to provide for massive investments in infrastructure and future technologies in the budget for 2022 and the following years. Through this measure, we are laying the ground for strong and sustainable economic growth after the coronavirus crisis and for sound fiscal policy in the future. The focus is on digital transformation and coping with climate change. The German Recovery and Resilience Plan (GRRP) plays an important role here.

Il Sole 24 Ore: Italy has been hit very hard by the pandemic, more than Germany. What is your assessment of Italy’s response to the pandemic crisis so far?

Olaf Scholz: Italy was the first member state of the EU to be affected at a large scale by the pandemic and did react decisively. The pandemic has shown us how strongly interconnected we are and how much we depend on each other in our Union. My understanding is that Italy is best off with a strong Europe, and Europe is best off with a strong Italy. I am convinced that Italy will continue to respond to the crisis in the way Mario Draghi describes in the foreword of the Italian Recovery and Resilience Plan: Italy will combine imagination, design capacity and concreteness, in order to deliver to future generations a more modern country within a stronger and more inclusive European Union.

Il Sole 24 Ore: And how do you assess the European instruments against the pandemic?

Olaf Scholz: The EU recovery instrument “Next Generation EU” is indeed a game changer for Europe and a historic opportunity for our countries and citizens. The member states of the European Union have joined forces in a spirit of solidarity to fight the COVID-19 crisis and to foster green and digital transformations.
The European Commission has been empowered to borrow up to €750 billion on capital markets on behalf of the EU to finance the EU’s response to the crisis. This decision made by all member states is an important milestone of European integration. It is a remarkable achievement because it shows that the European Union is able to take united action. This is a decisive difference to the response the EU gave ten years ago during the global financial crisis.

Il Sole 24 Ore: Mario Draghi has said that we have two kinds of public debt, “good debt used for productive purposes” and “bad debt” being used for unproductive purposes. Do you agree? For Draghi, the Stability and Growth Pact “was and is inadequate”. In your opinion, should the Pact be modified? In Germany, too, a discussion has begun on the “black zero” and the debt brake ...

Olaf Scholz: I think there are indeed good reasons to look at the structure and the quality of public finances to promote future-oriented and growth-enhancing public investments in line with the provisions of our fiscal rules. At the moment, our main task is to make the best possible use of the Recovery and Resilience Facility to create a sustainable recovery. These funds will help to promote the necessary modernisation of EU member state economies. Structural reforms and investments increase productivity and competitiveness. They also enhance the resilience of our economies against future crises.

In March, the European Commission declared its intention to relaunch the public debate on the economic governance framework when the recovery takes hold. My conviction is that a common currency needs common rules. Our rules have proven to be very flexible. They definitely work and it is important to me that we can do what is necessary now, in the EU but also in Germany. We have been able to do that so far and I believe we can do it in the future.

Il Sole 24 Ore: Which were the main tools you used in the fight against the pandemic in Germany?

Olaf Scholz: We have implemented a variety of complementary instruments to offer widespread support during the Covid-19 crisis. These measures address the different needs of firms, households and public entities. They include tax relief, deferral of tax payments, various credit facilities and public guarantees, financial support for local communities, public investment in technology, as well as direct grants for firms and the self-employed. Due to the unpredictable course of the pandemic, we constantly monitor our support measures and adjust them if necessary.

Il Sole 24 Ore: Another important framework of European rules is that which concerns the banking system. But the Banking Union is incomplete: you have proposed a series of interventions. Where are we at? How much remains to be done?

Olaf Scholz: The integration of financial markets and the deepening of the internal capital market are in everyone’s interest. Using the full potential of a truly integrated European banking market would create a noticeable increase in profitability, financial stability and the sovereignty of the euro globally. The fragmentation of the European financial markets remains a barrier to this. We are talking about an essential element of our prosperity and a strong European Union. That is why I made the suggestions you mentioned to attain further progress in deepening the banking union and the capital markets union. We have made good progress on the way to an integrated European financial market, but we have not yet reached our goal.

A common European Deposit Re-Insurance Scheme is one part of a complete banking union. However, we need further progress on the other elements as well. The whole package contains an efficient crisis management regime, deeper market integration and further risk reduction as well.

For example, we need harmonised European rules for the resolution of all banks, not just the big ones. Banks with non-viable business models must exit the market, with no cost to the taxpayer and without disruptions to financial stability or depositor confidence.

Another important issue is the further reduction of barriers to doing banking business across borders. Banking groups should be able to allocate capital and liquidity freely within the groups while maintaining safeguards for host countries in times of crisis.

Lastly, we need a level playing field also in the area of tax law. Progress with the Banking Union must avoid taxation arrangements that distort competition and lead to arbitrage.

In all these areas, we still have a lot of work to do. It is my conviction that every step forward brings us closer to an integrated single financial market and thus strengthens stability, competitiveness and growth in the eurozone and in the European Union.

Il Sole 24 Ore: Speaking of taxes: You have strongly supported global tax reform, the global minimum tax, the global digital tax ...

Olaf Scholz: In my view, global challenges require global responses. Therefore, the key priority in the field of international taxation is to establish fair and effective taxation on a global scale. I fully support the ongoing process at the level of the OECD whose aim is to tackle the challenges posed by the digitalisation of the economy and reach an agreement by summer this year.

As you know, my French colleague Bruno Le Maire and I have been continuously advocating for a global effective minimum tax, which is a key element of a global compromise. I am confident that through this initiative we will manage to put an end to the aggressive tax planning strategies of multinational enterprises. We are still discussing the precise rate for the effective minimum level of taxation, but the recent announcements by the US to increase their own national minimum tax to 21% has certainly changed the debate and will help us to agree on meaningful and effective rules.

Moreover, the global agreement has to ensure that multinational enterprises pay their fair share irrespective of their physical presence in market jurisdictions. Over the next months, we have the historic opportunity to achieve a major consensus-based international tax reform, and now we are closer than ever to this. Multilateralism is the only possible way to effectively solve the current challenges. Together, we will be able to create a fair, sustainable and modern international tax system. It is my true conviction that we can do this.

Il Sole 24 Ore: There are other challenges that need to be addressed, this time with European solutions: the fight against climate change and digitisation. Is Europe ambitious enough on these fronts?

Olaf Scholz: First of all, I am glad that the recent judgment of the Federal Constitutional Court gave the decisive push for the German government coalition to agree on amplifying the efforts on climate protection. We are moving ahead now by adopting an even more ambitious climate protection law. The goal is to make Germany climate neutral by 2045. The draft law provides for a target of 65% less greenhouse gas emissions in 2030 compared to 1990, and the interim target for 2040 is an 88% reduction in CO2.

Also, in my view the European Union is on track to increase its ambitions to fight climate change. The Council and the European Parliament have reached an important provisional political agreement with regard to EU climate law to reduce greenhouse gas emissions to at least 55% by 2030 compared to 1990. Further measures will be taken in the course of the Fit for 55 package to implement EU climate law. We will have to strike the right balance of measures to reach this goal. Tax policy is one element in our tool box; carbon prices and regulatory instruments are others. More international cooperation will also be essential in the fight against climate change.

Il Sole 24 Ore: You are vice-chancellor. You have been vice-chancellor during the worst crisis Germany has had to face since the Second World War. What’s the situation now? You are also the candidate for the chancellery of the Social Democratic Party (SPD). What is your programme for the future of your country?

Olaf Scholz: We are currently seeing a decrease in the infection rates – which gives us hope. The lockdown, the extensive testing and the massively advancing vaccination campaign – all this has helped to get this infection under control, at least for the moment. We are not quite there yet, but we can see the goal post.

But even if we may have overcome this pandemic in the summer, many people and companies will still need support this year – and they will get it. I made it clear from the beginning that we would give help as long as the restrictions persist.

Speaking for Germany, there is a lot of catching up to do in administration, education and digital infrastructure. We need rapid progress. The coming years will be decisive. It will be decided whether Europe is able to keep up with the economic and technological progress of other continents. If we want to be on equal footing with China and the US in 10 or 15 years, we must make the right decisions today. We need a clever interaction between research, entrepreneurship and the state. For me, the current situation is comparable to the upheavals in the 19th century and the development of the railroad. Back then, that was not just the achievement of innovative corporations that built locomotives or melted steel. The state also played a role because it created the entire rail network in a fairly short time. Today, for example, it is important to ensure that we become a gigabit society with a digital infrastructure that is world-class and serves the strengths of our economies.

With regard to my candidacy for chancellorship, I promised to make the necessary modernisation of our country my personal mission. The competence of my party is shaped by a deep understanding of the development needs of business, industry and infrastructure. I am convinced that the SPD has the answers to the challenges of our time.