The debt brake (''german: Schuldenbremse'')The Economist
Germany’s debt brake - Tie your hands, please
/ref> is a fiscal rule that was enacted in 2009 in Germany. The law, which is in Article 109, paragraph 3 and Article 115 of the Basic Law, Germany's constitution, is designed to restrict structural budget deficits at the Federal level and limit the issuance of government debt.

History

The debt brake was enacted because the nation's

debt-to-GDP ratio In economics, the debt-to-GDP ratio is the ratio between a country's government debt (measured in units of currency) and its gross domestic product (GDP) (measured in units of currency per year). While it is a "ratio", it is technically measured ...

exceeded the 60% threshold fixed in the

Maastricht Treaty The Treaty on European Union, commonly known as the Maastricht Treaty, is the foundation treaty of the European Union (EU). Concluded in 1992 between the then-twelve member states of the European Communities, it announced "a new stage in the p ...

, primarily a result of the heavy payments to reconstruct former communist

Eastern Germany The new states of Germany () are the five re-established states of the former German Democratic Republic (GDR) that unified with the Federal Republic of Germany (FRG) with its 10 states upon German reunification on 3 October 1990. The new st ...

after reunification and a loss of tax revenue during the

Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At t ...

. The law required a change to the constitution and in 2009, it was approved with a two-thirds majority both by the

Bundestag The Bundestag (, "Federal Diet") is the German federal parliament. It is the only federal representative body that is directly elected by the German people. It is comparable to the United States House of Representatives or the House of Common ...

and the Bundesrat. At the federal level, the law limited the budget deficit to 0.35% of the GDP beginning in 2016 and German states that approved the law were prohibited from taking on debt after 2020. Three states, Berlin,

Mecklenburg-Vorpommern Mecklenburg-Vorpommern (MV; ; nds, Mäkelborg-Vörpommern), also known by its anglicized name Mecklenburg–Western Pomerania, is a state in the north-east of Germany. Of the country's sixteen states, Mecklenburg-Vorpommern ranks 14th in p ...

and

Schleswig-Holstein Schleswig-Holstein (; da, Slesvig-Holsten; nds, Sleswig-Holsteen; frr, Slaswik-Holstiinj) is the northernmost of the 16 states of Germany, comprising most of the historical duchy of Holstein and the southern part of the former Duchy of Sch ...

, did not establish the law in their constitutions. In the years prior to the Covid pandemic, the law helped reduce Germany's debt to 59.5% of GDP. The debt brake is not absolute and allows the country to exceed the borrowing limits during a national emergency or a recession. The debt brake was suspended in 2020 in order for the country to deal with the costs of the

COVID-19 pandemic in Germany The COVID-19 pandemic in Germany has resulted in confirmed cases of COVID-19 and deaths. On 27 January 2020, the first case in Germany was confirmed near Munich, Bavaria. By mid February, the arising cluster of cases had been fully contain ...

and is expected to come back into force in 2023. In 2022, the government, led by Chancellor

Olaf Scholz Olaf Scholz (; born ) is a German politician who has served as the chancellor of Germany since 8 December 2021. A member of the Social Democratic Party (SPD), he previously served as Vice Chancellor under Angela Merkel and as Federal Minister ...

, succeeded in obtaining the two-thirds majority necessary to amend the debt brake to allow Germany to establish a 100 billion euro defense fund that would not be subject to the restrictions. The change was spurred by the

2022 Russian invasion of Ukraine On 24 February 2022, in a major escalation of the Russo-Ukrainian War, which began in 2014. The invasion has resulted in tens of thousands of deaths on both sides. It has caused Europe's largest refugee crisis since World War II. An ...

. Although the mechanism was successful in its stated goal, reducing government borrowing, it was criticized by left-of-center parties including the

Social Democrats Social democracy is a political, social, and economic philosophy within socialism that supports political and economic democracy. As a policy regime, it is described by academics as advocating economic and social interventions to promot ...

and the Greens, which suggested that the law limited necessary government investment. During the

2021 German federal election Federal elections were held in Germany on 26 September 2021 to elect the members of the 20th Bundestag. State elections in Berlin and Mecklenburg-Vorpommern were also held. Incumbent chancellor Angela Merkel, first elected in 2005, chose not ...

campaign, the Greens proposed reforming the rule to allow spending on infrastructure, healthcare and education.

References

Fiscal policy Government debt Public finance of Germany {{Germany-stub

History

See also

References