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A heated debate about the debt brake has broken out in politics and business. Should the state save consistently – or rather invest heavily?
“Save in time, then you will have it in times of need,” says a German proverb. What is meant is that money saved in good times should help tide over the bad times. The debt brake anchored in the Basic Law does exactly the opposite. It limits maximum borrowing in good times and bad to 0.35 percent of gross domestic product. The debt brake can only be suspended in emergency situations.
Last week, the Federal Constitutional Court ruled that 60 billion euros in unused credit authorizations for the fight against the corona pandemic may not be retroactively transferred to the Climate and Transformation Fund (KTF). These 60 billion euros are now missing from the federal budget planning. The decision not only triggered a political debate about the debt brake. Several budget items were blocked.
Greater damage without new debts?
There is also disagreement in the economy about the pros and cons of a debt brake. While the unions are unanimously in favor of a suspension, the employers are – unsurprisingly – against it. “Instead of outsmarting the debt brake, there must now be an offensive for Germany as a business location,” said Steffen Kampeter, general manager of the employers’ association BDA. “Our problem is not the debt brake, but rather the high spending and the lack of reform.”
Opposition comes from a number of economists. The President of the German Institute for Economic Research (DIW), Marcel Fratzscher, is convinced that the German state will not be able to survive without taking on new debt. If the state sticks to austerity budgets now, there will be much greater damage than by taking on new debt.
“We now need an investment offensive so that Germany becomes fit for the future, Germany is secured as a business location and social balance also takes place,” said Fratzscher. The chairwoman of the federal government’s economic advisory committee, the so-called economic wise men, Monika Schnitzer, who spoke out in favor of suspending the debt brake and reforming it, argues in a similar way.
Reforms difficult to implement
What this reform should look like is controversial. The debt brake is generally considered a success, but not flexible enough. One possibility would be to enable a gradual return after a crisis situation. After all, the argument goes, the consequences of the corona pandemic are not yet over.
Some future projects, such as climate protection or the expansion of infrastructure, could also be explicitly excluded from the debt brake. The catch: Any change to the Basic Law requires a two-thirds majority in the Bundestag. However, this does not seem to be achievable – at least in this legislative period.
Years of hardship?
The only option currently available is to declare an emergency situation over several years and thus claim the debt brake exception rule. However, there is then a risk that the Federal Constitutional Court will overturn this decision again.
The economist Veronika Grimm states: “Suspending the debt brake using an emergency rule requires an emergency. This is difficult to argue.” So it remains complicated to reconcile investments and budget discipline.