The constitutionally enshrined rule on the “brake, ” which limits the amount of government borrowing to 0.35% of GDP fits the , as a country fiscally cautious, not wasteful and determined not to charge the next generation with extra burdens. In this light, Germany and all its partners – ‘poor’ and ‘no’. But these things used to be true. The German government coalition was now massacred in the foot of the “sense debt”, while, respectively, the road to the election – probably after them. The “freno” was introduced in 2009 by then Chancellor Angela Merkel, during the “great recession”, after the international financial crisis. The aim of the Christian Democratic Government (CDU) and Social Democrats (SPD) was to control the debt that had been launched in the meantime. The rule itself provides for exceptions in extreme cases, such as “natural disasters or unusual emergencies that go beyond government control and are essentially detrimental to the state’s financial capacity”. But legislators felt that the “extreme” cases were theoretically unlikely, until Covid-19’s pandemic appeared, which made it jointly inevitable that the restriction would be lifted. The second extreme case was not long to arise, with the start of the war in Ukraine and the ejecting of energy prices. The urgent need to secure energy “as much as”, support for Ukraine’s defence and the decision to modernise German armed forces showed that the loan was exceeded as a one-way street. And this is how we arrived at 15 November 2023 and at the decision of the Federal Constitutional Court, which deemed the supplementary budget of 2021 unconstitutional due to a breach of the rule on ‘sex debt’ unconstitutional. As a result, the budgets and partly the special funds for 2023 and 2024 had to be restructured – seriously. Germany entered 2024 without a voted budget and the “financial gap” has haunted the government and German economists since. Some feel that the “crazy” should be lifted, others that it should even be abolished, others that it is about sacred office and others that some kind of revision should be considered. What everyone seems to agree on is that Germany is in urgent need of investment. So what is preferable to burden the next generations? Extra debt or outdated road and rail networks, badly maintained bridges and schools under collapse? Those who argue in favour of removing the brake to finance major projects argue that investment in strategically important sectors will also strengthen the development of the economy, which has been suffering in recent years. The ‘opposite’ again considers that Germany owes its long-term credit credibility and confidence to markets that allow for its cheap borrowing – when borrowed – precisely to this fiscal discipline of previous years, which they even consider encouraging private investment, limiting the risks to the public fund. The government coalition composed of the Social Democratic Party (SPD), Greens and Liberals (FDP) failed to answer the question. Faced with the ‘hole’ in the budget and the need on the one hand to support Ukraine in the face of winter and, on the other hand, to take measures for industry, Chancellor Olaf Salts and the Greens would gladly see an ‘extreme’ treaty which would justify additional lending. Christian Lindner, however, who anyway described his mission to the government as “a mound in the left policies” of his two partners, had a different view. As the ‘Zeit’ and ‘Süddeutsche Zeitung’ have revealed only yesterday, Mr. Lindner has been working his way out of the government for a long time, so rather the case of ‘sense debt’ was of less importance than he claimed when he stated that the chancellor was asking him to break the oath he made as Minister of Finance. After the dissolution of the government coalition, the budget of 2025 was left open and considered unlikely to be settled by the present minority government. Germany is in danger of reaching the autumn of next year without a voted budget, as the next government will probably not have formed before Easter. One of the biggest supporters of budgetary discipline is Friedrich Murch, the current leader of the Christian Democratic Party (CDU) and, according to polls, a more likely chancellor after the February election. It was also his party who appealed to the Constitutional Court claiming that the government violated the constitutional imperative. But the way the government disbanded brought the limits of brake debt to the debate and the possible need to review it. A few days ago Mr. Murch surprised politicians and media by stating open to change. “The debt brake is important, but not inviolable,” he said, while clarifying that relaxation should not be made in favour of social benefits, “to spend even more money on consumer and social policy.” Of course, he knows that the budgetary gap will not suddenly close, just because he will settle in the chancellery himself, but he also understands the increasing pressure from the state governments – even those with a majority of CDUs – who are asking for funds for investment. The Christian Democrat even Mayor/Governor of Berlin, Kai Wegner, not only announced an initiative to overthrow the brake debt to the Federal Council (Bundesrat), but also stated that he has discussed his leader and the party is ready for reforms. Friedrich Murch refuted the claim and relationships – which have never been particularly fond – froze. That was one more reason why the later Murch statement caused surprise and some dissatisfaction by its Members, who had so far been convinced that they would reach the elections with arguments in favour of the rule and now need a more decent way to change rhetoric. The SPD hastened to exploit the conversion of the CDU leader and to propose reform of the rule before the election, in the fear in the next parliament that there would be no two-thirds majority needed to review. This, however, seems unlikely today – even after the autumn report of the five “Sounds” of the German economy, which see an urgent need for investment in infrastructure. The CDU will sooner or later discuss the issue of ‘sense debt’, probably trying to form a government coalition after February 23rd, when the budgetary and structural needs and policies with which they will be addressed will be put on the table. The Berlin Centre for Social Sciences (WZB) is however putting an additional element in the debate: the threat posed by fiscal austerity for German democracy. In a survey, WZB finds that “the voters exposed to the material effects of economic crises and financial crises are more likely to support the far right, while austerity in response to these crises further aggravates the problem.” In this context, it is noted, “a harsh, mandatory constitutional requirement such as the debt brake, which forces sovereign political parties and government coalitions to adopt mandatory austerity policies against these challenges, not only a bad economy, but also a bad policy.” On the contrary, in order to address Germany’s serious economic challenges and strengthen democracy against the increasingly serious threat posed by far-right and polarisation, German politicians “should introduce more flexible budgetary rules, as the debt brake can be well-intentioned, but democratic and economic stakes are just too high to appreciate budgetary rigour above all other objectives”, it is stressed. In Germany, of course, budgetary discipline is not just a constitutional imperative. It is a belief deeply rooted in German political and social culture and will hardly be shaken. But the data has now changed here. The economy is in recession, industry is constantly losing jobs, social and geostrategic conditions are stifling and the country is heading for – unusual in Germany – early elections “Ordoliberalism” or “accidental liberalism” may have “noble” motives, but it is no longer excluded from reaching its limits. Source: RES – ICM
Germany: What is a debt misunderstanding and why divides the political system
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