Too strict and economically inefficient: Economists see structural weaknesses in the debt brake and are calling for more flexible regulations. Otherwise you will save a lot more than actually necessary.
Important economic policy advisors to the federal government are calling for the debt brake regulations to be comprehensively relaxed. Currently it is unnecessarily strict, said the chairwoman of the Advisory Council for the Assessment of Overall Economic Development, Monika Schnitzer, to the dpa news agency. If the debt brake is left as it is, the debt ratio will fall much more than necessary over the next few decades.
The economists are therefore suggesting a reform: “We want to increase flexibility and create scope so that future-oriented public spending can be made without undermining the sustainability of state finances,” said Schnitzer.
Three “design weaknesses” turned off
The chairwoman of the economists sees three structural weaknesses in the debt rule: On the one hand, there is currently no transitional rule for the period after an emergency. Of course you could declare an emergency situation again for the following year, but that becomes more difficult to argue with each passing year, says Schnitzer.
Such uncertainty is sensitive for the economy because it cannot rely on promised support. The economists therefore suggest that borrowing be gradually reduced after an emergency situation: “You could reduce the structural deficit by 0.5 percentage points annually, as planned in the EU. Or you could reduce it linearly over three years.”
The second reform approach concerns the debt limit, which is currently 0.35 percent of economic output. This is unnecessarily low, says Schnitzer. The scope could be increased depending on the debt ratio: to 1.0 percent with a debt ratio below the Maastricht limit, to 0.5 percent with a debt ratio of over 60 percent – and to 0.35 percent with a debt ratio of 90 percent or more.
The Maastricht rules stipulate that the general government financing deficit must not exceed three percent of gross domestic product (GDP). In addition, the debt level cannot be higher than 60 percent of GDP.
Need for reform Economic component
The Federal Government’s advisory committee sees further need for reform in the so-called economic component of the debt brake. To put it simply: the worse the economic situation, the higher the loans are allowed. The problem is that this is based on predictions. Because at the beginning of the year the economic development is unknown.
This means that in some years there is too much room for debt and in others too little, explained Schnitzer. “It’s not economically efficient.” The economic component must be made less susceptible to revision.
Lindner against easing
Reforming the debt brake requires a two-thirds majority in the Bundestag, which the coalition alone does not have. But even within the traffic lights of the SPD, Greens and FDP, the attitude is very different.
Finance Minister Christian Lindner (FDP) defended ARD morning magazine his course against easing the debt brake. “You can’t turn constitutional commandments off and on like a light switch,” said Lindner. Compliance with the debt brake is also economically sensible: “It is a matter of prudence. Otherwise, at some point we would have to put together austerity packages or increase taxes just for the debts of the past.”
Advisory committee recommends quick action
Schnitzer still urges you to act quickly. “We are addressing adjustments that are actually obvious. We recently experienced the fact that there is a really painful lack of a transitional rule – and also that the border is too rigid,” she said. “Our hope is that the coalition partners in the traffic lights and the opposition can come to an agreement on this.”
She can only “strongly recommend tackling the problem during this legislative period.” “Depending on how things develop, it may not be so easy to find a two-thirds majority from democratic parties in the next legislature.”