Loading
WHAT DOAngela MerkelimfOECDgdpGDPGDP dgapdgapYour browser does not support the element. , Olaf Scholz, the Bundesbank, the , the , Germany’s biggest trade union, its state-appointed council of economic experts and most of its European allies have in common? Not much, on the face of it. But they all share the view that Germany’s “debt brake” is no longer serving the country well.The debt brake is a blunt instrument placed in the constitution by Mrs Merkel’s government in 2009. It limits the federal government’s annual deficit to 0.35% of , after adjusting for the economic cycle. It prevents the 16 states from borrowing at all. Now, as Germany’s flatlining economy holds down revenues while spending demands mount, it is biting harder than ever. The country needs hundreds of billions for infrastructure, decarbonisation and education in the coming years. Add to that an extra €30bn ($31bn, or 0.7% of ) a year that will be needed for defence once a special fund created after the invasion of Ukraine runs out in 2028.Germany’s public-debt stock, at 64% of and falling, is lower than that of most of its peers. Little wonder calls for reform are growing, including from Mrs Merkel herself. Crucially, voters seem to agree. A forthcoming opinion poll conducted for the German Council on Foreign Relations () finds that a majority of Germans want reform of the debt brake to allow for higher investment. “Present German voters with trade-offs, and it’s clear what they want,” says Shahin Vallée of the . He thinks the focus on the debt brake in the campaign for Germany’s federal election on February 23rd has concentrated minds. (A dispute in November over whether to relax the rule precipitated the collapse of Mr Scholz’s government.)Will they get their way? Much depends on Friedrich Merz, who polls suggest will take over from Mr Scholz as chancellor. His centre-right Christian Democrats are split, but Mr Merz has hinted he could ease the rule. Now Germany’s brightest economic brains are buzzing with ideas for reform. These include lifting the 0.35% limit; creating giant funds for infrastructure or defence; or even replacing the rule with fuzzier guidelines with a role for parliament.The last of those seems unlikely. Constitutional changes require two-thirds majorities in parliament, and a proposal will emerge only after delicate coalition talks. Mr Merz would have to be mindful of the fiscal hawks in his own ranks. Reform is likelier than revolution.
