What happens to the debt brake?

Debt brake: a guarantee for stable public finances or a brake on growth?

The debt brake, which has been part of the German constitution for 15 years, is one of the major points of contention in federal politics. While some praise it as a guarantee for stable public finances, others see it as a brake on growth, as it would prevent urgently needed public investments. It is not coincedental that the Chancellor's ultimate demand to his Finance Minister to suspend the debt brake for the coming year (and the later's refusal to do so) sealed the end of the governing coalition of SPD, Greens and Liberals (FDP).

Little room for maneuver in fiscal policy ...

One thing is clear: the debt brake noticeably restricts the scope for fiscal policy. This was less noticeable before the pandemic, as the state benefited from a flourishing economy and, in particular, falling interest rates. As a result, both additional spending on social policy and compliance with the debt brake were easily possible at the same time.

Since the end of the zero interest rate policy at the latest, this is no longer possible. In addition, it has become clear that infrastructure and the German armed forces have been disastrously neglected for a long time, meaning that significantly higher expenditure is required here. Politicians must therefore set clear priorities for additional expenditure in order to comply with the upper limit for new borrowing set by the debt brake.

... fuels discussion about easing

Since the coalition fell apart, hardly a week had gone by without calls for a reform or even the abolition of the debt brake in order to enable the financing of additional expenditure deemed necessary through new debt. These demands were heard particularly frequently from representatives of the Greens, the SPD and the Left Party. These parties also officially advocate a relaxation of the debt brake. After rejecting changes to the debt brake for a long time, the candidate of the Christian Democrats (CDU) and their Bavarian sister party CSU for chancellor recently also showed himself to be open to this if it would enable additional investment. At the state level, there had already been many supporters of a relaxation within the CDU. Alongside the AfD, which will almost certainly not be a member of the next governing coalition, only the FDP has so far categorically rejected a change to the debt brake.

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