Germany’s “debt brake” is too tight.
Enshrining a legal commitment to keep the budget close to a balance in the constitution does not appear to be a good idea, and a recent ruling by Germany’s Constitutional Court would jeopardize the country’s investments in the green transition.
Governments that observe fiscal discipline are all too rare. But it turns out that it was a very bad idea for Germany to enshrine in its constitution a legal commitment to keep its budget close to balance. A ruling by Germany’s Federal Constitutional Court that gives a strict interpretation of the law will jeopardize Germany’s huge investments in economic modernization and green transition – investments that Chancellor Olaf Scholz says will be needed Things are nothing short of a new industrial revolution. Germany’s “debt brake” must be relaxed or abolished, although the relevant political consensus will be very difficult to achieve.
A 2009 amendment to Germany’s Basic Law aimed at stabilizing public finances after the global financial crisis limited Germany’s budget deficit to 0.35% of its gross domestic product (GDP) (cyclically adjusted), except during states of emergency. . The German government declared a state of emergency and suspended the “debt brake” after the outbreak of the new coronavirus. Not all the special funds to deal with the epidemic have been spent. In order to bypass borrowing restrictions, Scholz transferred 60 billion euros of it to the Climate and Transformation Fund (KTF) – a fund designed to finance everything from charging infrastructure to hydrogen projects to Climate transition-related projects such as battery factories.