CHRISTIAN LINDNER is the leader of the Free Democrats (FDP), the pro-business Germany party whose political revival—and possible participation in Angela Merkel’s next coalition government—is covered in this week’s issue. On August 24th he sat down with The Economist for a wide-ranging conversation.
A full digest of the interview is here.
The transcript has been translated from German and lightly edited for clarity.
- On Germany’s economic competitiveness
The Economist: To start, is Germany too comfortable?
Christian Lindner: Yes, Germany takes its current strength for granted. We are falling back on our trade surplus but do not appreciate that the capital it earns is no longer being invested here. So the current strength of our country is a prosperity hallucination.
In what way is it a hallucination?
Special factors like the low interest rate, the prolonged low external value of the euro, the low cost of raw materials and the fact that baby boomers are still in the labour market all show that we are in the best of possible worlds. But things like digitalisation, the ageing of society and shifts in world trade like those caused by Trump and Brexit demand answers. Our country must become more innovative. Private firms, too, must invest more. And we cannot allow digitalisation to be something that mostly happens elsewhere.
Are the big German political parties tackling these issues properly?
No. The CDU manifesto is founded on continuity, not change. The SPD manifesto even wants to reduce labour-market flexibility and the innovative capacity of SMEs through tax increases in this area. So right now we see a new gap in the market for the FDP [Free Democrats] as a pro-openness, pro-technology, pro-market party.
You mention digitalisation. Why is Germany in the second division on this? What are the reasons?
The climate for innovative start-ups in Germany is not good. Our capital market is not efficient enough and entrepreneurship has long been undervalued.
By politicians? By society?
By society as a whole. And societies that are prepared to be more daring and have efficient capital markets have overtaken us on this. Germany’s prosperity is based on century-old sectors which may now be threatened by disruption. We have to change fast to adapt our classic strengths. For example, machine- and car-making remain strengths of our country that we have to transform for this new era, in order to get ahead in it.
Transform into different industries?
No, there will be machine- and car-making in the future, chemicals and pharmaceuticals too, but these sectors are changing. And our task must be to lead in this new era and use our classical strengths. Take machine-making and digitalisation. “Industry 4.0”, as it is known in Germany, is about deploying the most advanced technologies of the internet age in industry. We can be world leaders in this area, but have to want it. We cannot jump into the lead on things like “platform” or “hardware” businesses any more—we are no longer so cutting edge there—but we still have great opportunities when it comes to applying technology in industry and in B-to-B [business-to-business] internet platforms.
What exactly can the government actually to do make that easier?
Firstly the government must remove bureaucratic burdens and rapidly create a legal framework for new technologies, like self-driving cars, so we can hit the road in the truest sense of the term. Second we can stimulate corporate investment and innovation with tax exemptions and R&D support. Third we must quickly make the digital infrastructure competitive. I would also privatise the state’s shares in telecoms and post companies and spend those billions on targeted investment. Fourth and finally: the state itself must become more digital. Paperwork must be replaced by digital administration to save people time and speed up processes.
Does that mean Germany needs a new relationship to data security? Take for example Google maps. Outside of the big cities you can’t use it here, but you can in almost every other European country, which has to do with Germany’s particular culture. Can that be changed, realistically?
Privacy is a competitive advantage for Germany, as well as for Europe by global comparison. But the old data reduction and data economy paradigm is outdated. The key thing is to have command of one’s data. Citizens must know what information about them is being gathered and his it is being used. They must be in a position to demand that the data be held elsewhere or be deleted. A right to control of one’s data would be a new approach enabling its gathering and use but also ensuring that it is tied to the individual, who cannot be made a “transparent citizen” against his or her will.
Are there particular international precedents that you are looking at?
Not yet. Europe has a chance to become a world-leader in handling the privacy question. Europe’s data protection regime still has some developing to do. I would hope that we can revisit a number of regulations and see if they are really suitable for modern life, whether they really make new business models possible while at the same time protecting a citizen’s private sphere.
You mean across Europe?
I’m talking about Europe as a whole here, because you have to work at that scale to create a level playing field for digitalisation. And we must quickly establish and expand the European digital single market, so economies of scale in new business models can develop quickly. This is one of America’s competitive advantages: in that one jurisdiction you can access a huge market with one (and with Spanish one-and-a-half) languages. That gives it lots of fiscal firepower.
Right. The FDP is demanding a Digitalisation Ministry. Can’t this all be done within the existing ministries?
Recent years suggest not. We want to bundle powers in one place so we can tackle these questions with speed. A side effect would be that a digitalisation minister would of course raise awareness of these challenges among society and businesses. In other words, don’t underestimate the effect this would have on the communication of these issues.
Can we assume that if the FDP joins the next government it will prioritise running this ministry, if it is created?
We are not even in parliament yet so it would disrespect voters to talk about coalitions, let alone the ministries we seek, at this stage. But it is true that we are ready to take on responsibility, including for difficult issues. We don’t want to govern comfortably; we want to govern only if we can implement liberal projects and solve problems.
- On Germany’s trade surplus
Solve problems! Good. To change the subject somewhat, Christopher Pissarides, a Nobel-prize winning economist said at this conference in Lindau [the Lindau Meeting on Economic Sciences] that Germany must spend and invest more, along with other surplus countries in Europe and the world, in order to create a more balanced European economy. The IMF has said the same. Are they right? Is that your view too?
No, and I’m surprised that luminaries hold such views. Germany is investing its export surplus, albeit not at home any more, as I said in answer to your first question. We export huge amounts of capital in the form of foreign plants, bonds and direct investments. In doing so we contribute to the stability and economic prosperity of other places; at the cost of having to write down many assets in the financial crisis of 2008. In retrospect we gave away the goods that we exported.
But Germany needs investment too. At least, some economic think-tanks like the DIW [Institute for Economic Research] and others claim as much.
I see the need for investment in Germany too. That’s not in question. It’s just that stoking up public investment in a time of strong growth like the current one could very quickly lead to overhearing, because capacity in the construction industry, for example, is used up. I consider the current investment rate too low, but to think that one can expand it ad infinitum would be voodoo economics. I would much prefer to see stronger domestic consumption in Germany through reduced taxes and social-security contributions and better conditions for private investment, which is far below the rate of depreciation.
Yet your opponents claim that corporate tax cuts in the past have not led to a higher investment rates. Is it just a question of making them deep enough?
I share the view that reducing corporate taxes does not automatically lead to higher investment. Therefore I would concentrate tax relief in the corporate field on the promotion of R&D investment and not on reducing taxes on profits. In the private economy I believe rising social-security contributions, rising taxes and above all the rising tax rate have made people consume less and in particular have prevented them from fulfilling the dream of owning property. The property-ownership rate in Germany is falling. That is a big danger to the pensions system. The rate is already low by European comparison.
- On German-American relations
I didn’t know that. Now to foreign policy. You have said that Germany should at least try to improve its relationship with Russia as the situation in the Crimea will not realistically change in the next years. At the same time you are against sanctions reductions. How can the relationship with Russia improve in these circumstances? Is that realistic?
My top priority is the maintenance and improvement of the transatlantic relations. The FDP is a party that cherishes the transatlantic relationship. For us it is the highest priority, because it is a community of values and we have shared economic and security interests. Donald Trump must not destroy a partnership that has been built up over decades. So the first priority for the German government and the European Commission must be to intensify contact and dialogue with the USA; if not with the White House then in Congress and in civil society. It must be more intensive than ever.
Is the current government doing that?
Not enough, at any rate. Civil-society actors, individual MPs, political parties and firms also have the task of building a bypass around Trump so the transatlantic relationship does not cool and so we can reconnect after Trump.
Are you directing that at American states and congressmen too?
A German minister can meet his American colleague any week. A German MP can visit Congress any week. The employees of an American firm in Germany or a German firm in America can nurture personal contacts and dialogues. All help to build bridges, so that lines of communication and understanding are not destroyed by Trump.
But on what do you base the claim that this is not happening already? BMW for example is doing diplomacy in South Carolina, I believe, where it has a factory. The chancellor is making an effort too.
More is better. The more the better. That is the very top priority.
- On Germany and Russia
Very interesting. Now Russia.
We should not settle for spectating at a spiral of escalation and military build-up. Time and again there must be possibilities to get out of this spiral. The annexation of the Crimea violates international law and is not acceptable. However Russia will not begin to change its approach, which is aggressive, authoritarian and imperialistic, on the subject of the Crimea, but at most on questions of a simpler nature. Whether there is willingness in the Kremlin to do that I don’t know, but one should be open to the possibility of getting out of this dead end. So my proposal is to freeze the Crimea conflict, not accept the violation of international law, keep up the sanctions there, but in other areas to take up lines of discussion again.
In which areas?
There are many areas where that would be possible. Like joint crisis management in Syria. If Russia makes a visible effort to change there, then we can think about the relaxation of individual sanctions, even if the Crimea problem is not yet solved. If it is clear that Russia is not responding we must become more concerted than now and even toughen sanctions somewhat. Then projects like the NordStream 2 pipeline would have to end or at least lose the government’s support, because to do otherwise would be inconsistent.
But won’t that worry people in Estonia or Lithuania? Hearing that the Crimea conflict should be frozen, won’t they fear that it could embolden Putin to do the same to their countries?
No, now we are talking about NATO partners. Ukraine was not one. If a NATO partner gets into a conflict with Russia that situation has a different quality to the one we have in Ukraine, which is itself internally instable. I see a difference in how the Western community should react. Moreover, there are historical examples of what I am proposing here. Nato’s Double-Track Decision [of 1979] followed the same principle: combining the stick with a willingness to talk. The stick, back then, was to upgrade the middle-range nuclear weapons. The willingness to talk was the offer not to do so if Russia did without the deployment of the SS-20 missiles [in Warsaw Pact countries].
- On Germany and Brexit
Thank you. Now Britain. The FDP is seen as pro-British both in Britain and here. I think that’s correct. What exactly should the German government do differently on Brexit?
It is unfortunately the British government which must be criticised. Our answer as Europeans must be to manage Brexit fairly. I favour neither a hard nor a soft Brexit—it must be fair for both sides. We have no interest in a weakened United Kingdom, because it remains an important partner and friend, even if it has unfortunately decided to leave the European Union.
You talk of a fair Brexit. Among many Brexiteers and Tories in Britain a “fair Brexit” means Britain staying in the Single Market without free movement.
That is an illusion.
Is that unfair? Some say it is right and fair if Britain stays in the Single Market. That it would be good for Britain, good for Germany and German companies, and that it’s impossible for Britain to accept free movement. Perhaps a compromise can be reached?
There can be no such compromise, as the Single Market is not a customs union. The Single Market is a European space of freedom without borders, in which people can move. The fundamental freedoms are part of this. And in Britain the free movement of interested parties is consciously attacked by Brexiteers. Europe is about free movement of workers, not welfare tourism.
Would a strong FDP in opposition or in government meaningfully change German’s policy on Brexit?
No, I don’t get the impression that the German government is taking a different approach on this issue. I don’t see that from the European Commission either. At the start there was a sense that a cautionary tale should be made of Britain. I don’t see that any more. I don’t think that the the attitude in London has changed or that many realise that what was promised about Brexit was actually crude demagogy and that Britain has benefited more strongly from the EU than was thought.
One last question on this subject. In terms of the sequence of talks in Brussels, Mr Barnier wants agreement about the Irish border and Britain’s financial commitments to the EU before really tackling a new relationship. Do you agree with that? Is that sensible?
Yes. I agree and consider this sensible.
- On Germany and the Euro zone
Now France. Some experts have said that a strong FDP would be bad for France. Is that correct?
We emphatically support some of his [Emmanuel Macron’s] demands for changes to the European Union and the Euro zone. The federal government should support his proposal to secure the Mediterranean route and humanely accommodate refugees in camps in North Africa. If he means a European finance minister who ensures that the rules of the currency union are strongly heeded and are independently endorsed, then we support that too. By contrast a Eurogroup budget, into which is paid and out of which the deficits of national economic policies are corrected, is not endorsable for the FDP. We don’t want finances to be equalised automatically; that must continue always to be decided politically. If money for investment and innovation in Europe is needed, the FDP is always ready to discuss how this financing can be improved. Given the ECB’s money glut, however, I see no such deficit.
So Mr Macron must see that the FDP is like him and how he fought his election campaign. In his campaign he always said that sweet and sour are connected in every demand you make. That’s how it is with his reform proposals too. He cannot just get sweets; he has to swallow some sour too.
You are against mutualising existing debts. Would you completely rule out theoretically creating new common debts, for example to finance worthwhile investments?
We could discuss a purposeful and independent investment fund like the post-war Marshall Plan. But we must decisively reject any automatic transfer mechanism or commonly held debts for consumption spending by countries incapable of reforming their welfare states. The FDP would not go along with that.
But something like a Marshall Plan could include common debts?
The Marshall Plan refinanced itself. Common debts for consumption spending etc—that is not conceivable. So any budgetary help to, for example, refinance debts is completely out of the question. I think would be sensible actually to implement the Juncker-Plan. It envisages many private investments that can then be leveraged by European Investment Bank programmes. So if capital is needed to finance private ventures or infrastructure works, I’m prepared to look at the proposals. But I would look at or support no proposals involving direct budgetary support or direct mutualisation of debts. That is a red line for the FPD.
Thank you. You have called for Greece’s exit from the Euro zone. Do you still think that? Should that happen now?
We defined clear criteria for the assistance programme in 2010. The IMF was always part of this and contributed expertise and capital. The Troika was formed around that time to ensure optimal management of the stability programme. Since 2015 the IMF has no longer been there to finance Greece. At the same time, in summer 2015, European finance ministers unanimously agreed that Greece should leave the Euro zone and were blocked by the heads of government the next day. But the technical financial assessment was that Greece should leave the Euro zone. To this day I’m of the opinion that it would be more humane and promising if Greece stayed in the EU but with a new Drachma, enabling an external devaluation of the currency. Then the money from Brussels would no longer flow as an assistance loan nobody still thinks will be paid back but as direct support that would have to be deployed for administrative modernisation and business and infrastructure finance.
You are talking rather theoretically. How would you do that in practice? It would be a huge shock to the system, however good the reasoning.
I doubt that Greek economic risk would unleash another shock. And in any case we have made ample progress in other areas and have found mechanisms that would make a Greek exit more of a symbolically positive decision showing that rules are now being kept again. My goal is not that we misunderstand each other nor that Greece exits, but that there be clear rules. Greece must hit its reform targets, Greece must fulfil the facts and figures in its budget. And the IMF must say that the programmes will lead to a manageable debt burden. And all three are missing. If that changes, Greece can remain in the Euro zone. If not, we need to think about a new strategy. The IMF proposes a haircut. In my assessment you can only have this haircut as part of a package under which Greece leaves the Euro zone.
If Greece does not fulfil these conditions, which you have said is not currently the case, should the German government actively demand its exit from the Euro zone?
At any rate the FDP would not approve a Bundestag vote on further German participation in assistance programmes for Greece.
- On the FDP
Now let’s finally talk about the FDP. What did the party do wrong in the last government?
What did the FDP do wrong? In its goals and demands of the federal government the FDP did not fulfil the demands on a liberal party. In particular we did not sufficiently use our government responsibilities and ministries to advance our agenda from the years before 2009. For example, a party that has wanted to reform the tax system for years must claim the finance ministry, which is responsible for that.
So put up the finance minister? Is it still the case, that this would be a priority for the party?
The FDP has broadened itself thematically. Education, digitalisation, economic renewal, also finance, energy and immigration, now mark our agenda. For that reason the situation today is no longer comparable with the one in 2009, when the FDP put a single project front and centre.
How have you renewed the FDP?
We answered the question: why does this party exist and why is it still needed? Why did we become members of this party and not joined the Social Democrats or the conservatives or the Greens? The answer is that the FDP cherishes a recognisable individualism. As such we are the most Anglo-Saxon party in Germany, because others think more in groups and we think more in individuals. We trust people to take responsibility for themselves. We trust them to be solidaristic, tolerant and open. So our image of the state is different from those fostered by our competitors. We see it as a sort of partner and arbiter. A partner who lowers hurdles so people can live their lives as they want and an arbiter who ensures fair economic competition and prevents any player from becoming powerful enough to dictate the rules to others. By contrast the other parties want to make the state a controller, a watcher-over of people’s lives, because they think little of the individual.
Your goal is to become the third-largest party in the Bundestag. Why is that so important?
It comes down to who, in the event of a grand coalition like the current one, would head the opposition. In the group of smaller parties we would then be the most important. Of course that also has a significance in the event of coalition soundings. Then we could bring our own proposals to bear more forcefully.
There are rumours that you would prefer to be leader of the FDP Bundestag group, even in the event of FDP coalition participation. Whether or not that is so, you are the most prominent figure in the party. And it’s a party that has had only limited involvement in state governments until recently. Does the FDP have enough experience and personnel to discuss possible participation in a government?
We have many experienced personalities, who in recent years have held responsibility in the federal governments and in state parliaments; including some who have already been ministers.
For example?
Nicola Beer, our general secretary. Moreover I see it as an advantage: now we can also bring new personalities from the business, science, culture and media worlds into politics.
Like Macron, almost?
In what some call a flaw I see a great advantage, as there is too little movement in and out of politics in Germany. The FDP could now change that.
Where are there areas of agreement between the Greens and the FDP?
In the field of citizens’ rights and how they must be balanced with security efforts there are certain points of contact. Moreover we have common goals, like making the education system better and reaching environmental goals. But we are a long way apart in how we see society and people. On the big questions of the day, particularly on immigration policy, I lack the powers of imagination to see how we could come to a common governing project. Securing the Mediterranean route, sending illegal migrants home and a rigorous integration policy—all that is barely conceivable with the Greens. They are still living in 2015.
And Boris Palmer? [a Green mayor who has written about the difficulties of integration]
And the shit storm Boris Palmer got from his own party…
Christian Lindner, many thanks.
Thank you.