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Suspension of ‘Debt Brake’ in Germany: Why Not Forever?

Confronted with the impossibility of “organizing” €60 billion into its Climate Fund from other fiscal budgets—which the Constitutional Court ruled to be invalid—the German government intends to suspend the strict debt ceiling on state borrowings (called the “debt brake") for 2023 and likely also for 2024. Finance Minister Christian Lindner (FDP) declared yesterday that this has to be done because of “an extraordinary emergency situation” which, if not resolved, would endanger most of the climate protection strategies. With a supplementary budget for this year, the government will “propose a resolution to the Bundestag which has to vote on it as the debt brake has constitutional status. If the Bundestag approves it, new borrowings are possible.” In an attempt to keep new borrowings low, Lindner swore the coalition to a strict austerity course. “We are talking about a considerable need for additional consolidation,” Handelsblatt quoted him as saying. “We are talking about tens of billions of euros, for example to implement the ambitious plans to renew the infrastructure and invest in technology.” Lindner sees potential for savings in the social budget, among other things, but he categorically rejected tax increases. The Social Democrats oppose social budget cuts, and instead favor as much in new borrowings as possible. These differing views of the coalition partners can blow the government apart.

Green Party leader Omid Nouripour welcomed Lindner’s announcement of a supplementary budget, and the associated suspension of the debt brake. “Thank you very much for that,” said Nouripour at the start of a four-day party conference in Karlsruhe. At the same time, he called for more investment and a reform of the debt brake. “Saving money is not an option.” Investments are needed for a functioning hydrogen network, for green industry, for a charging infrastructure for e-cars and for “green steel.” Green Economy Minister Robert Habeck said he was in favor of the debt brake, but that as rigid as the debt rules were designed to be, they no longer fit the current times of multiple crises. What he said is needed now is “a contemporary update of the debt brake.”

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