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Berlin airport shows new German government how not to finance growth

Last fall, in the early months of the Covid pandemic, a new Berlin Brandenburg Airport flashed open door – 10 years behind and with a total cost of at least €7 billion, two and a half times the original budget.

Considered a national shame, the 30-year state-run airport project is not an isolated case in Germany’s transport infrastructure record. The construction of Stuttgart’s new railway station, now the subject of allegation of fraud, priced at 8.2 billion euros, up from the original 2.5 billion euros.

For FDP, the “amber” member of Germany’s upcoming traffic-light coalition government, such examples highlight the shortcomings of entrusting large-scale infrastructure projects to developers. public sector management and budgeting.

As the administration prepares to take office this week, 176 pages alliance agreement underpinning it bears the clear influence of FDP, especially in the section “investing in the future and sustainable finance”.

Calming the spending instincts of the dominant SPD and the Greens, it is asserted that the country’s “debt brake”, which limits Germany’s structural deficit, will be maintained, even as the union promises ” a decade of investment”. The plan includes “unprecedented additional spending” thanks in part to a pledge to “activate more private capital for transformational projects”.

Professional infrastructure operators, the country’s cash-rich insurers and capital markets, reborn with the energy of hope EU-wide capital markets union, all of which will be essential suppliers of that private capital, according to senior officials.

A key paragraph, included as the FDP insists, supports the expansion of public-private partnerships, a key scheme in the UK’s infrastructure renewal since the 1990s – although less recently. Data from the UK’s National Audit Office shows volume peaked in 2007 at £8.6 billion, when more than 60 deals were done, almost nothing in recent years.

German enthusiasm for PPP has shown a similar pattern of decline, albeit by much smaller numbers – at its peak in 2007, 38 deals worth a total of 1.5 billion euros have been made, according to Partnerschaft Deutschland, an advisory group. In 2019, the last year for which data was available, only three transactions were made, worth just 66 million euros.

Those models reflect a mixed judgment about the effectiveness of PPPs. The UK’s NAO has criticized the value for money achieved in a range of projects since the 1990s. German advocates, such as the BDI employers’ union, point to the benefit: a network The world’s leading rapidly upgraded Autobahn would not have been possible without the cooperation of the private sector. The price motorists pay – on toll roads – divides public opinion.

The new alliance agreement states that private sector money should be used to support multiple investment priorities – environmental protection, digitization, education, research and infrastructure.

By design, the tension is between a government that wants to minimize costs and a private sector that wants to maximize profits. That is not acknowledged in the coalition agreement, although some figures in the new administration are clearly skeptical of private-sector money, especially given the extremely low interest rates on German government debt. “When we can raise zero capital, why should we pay the private sector?” ask a person.

A top insurance executive says officials’ view of private money as relatively expensive debt financing is misguided: for one thing, private-sector money should carry executive expertise. ; cash, on the other hand, is best used not as debt but as equity, protected by a state-backed advance loss buffer, to help control the kind of expenses that exceed Berlin airport budgets.

With or without PPP, the new government has other strategies to get around the constraints of the debt brake. For example, KFW, the current development bank, appears to be refinancing – a process that should not add to government debt. The bank can then assist in financing large transformation projects. The agreement proposes a similar approach to raising the lethal financing charges of state-owned Deutsche Bahn and state property agency Bima.

As Olaf Scholz, The SPD’s incoming Chancellor, breaking the right balance to strike with his new FDP finance minister Christian Lindner, they should probably look to the sky. Even during Covid, there are enough planes flying overhead towards Brandenburg Airport to give regular reminders on how not to do it.

Patrick.jenkins@ft.com

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