A dispute over Germany’s “debt brake” contributed to the demise of Chancellor Olaf Scholz’s three-party ruling coalition, clearing the way for next week’s snap elections.
The regulation, which rigorously limits government borrowing, is now at the focus of debate about Europe’s ailing top economy, a critical election battleground.
Critics accuse it of years of chronic underinvestment, which has resulted in deteriorating infrastructure, poor defence spending, and lower education levels. Defenders claim it has contributed to the country’s financial stability.
Here are some questions and answers on the contentious rule:
-What is the debt brake?-
The legally mandated policy prohibits the central government from running a deficit of more than 0.35 per cent of yearly GDP, except in emergency circumstances.
It was introduced by then-Chancellor Angela Merkel’s government in 2009 during a discussion about national debt levels during the global financial crisis.
More than two-thirds of the upper and lower houses of parliament approved the rule, which necessitated a constitutional amendment. It took effect for the federal government in 2016.
It was halted for four years to allow for additional spending during the coronavirus pandemic and, later, the energy crisis caused by Russia’s war in Ukraine, but it was reinstated in 2024.
– What do its supporters say? –
Germany’s public debt is approximately 60% of GDP, which is lower than most other G7 countries.
One of its primary political supporters is Scholz’s coalition partner, the pro-business Free Democratic Party. It contends that the brake ensures that future generations are not saddled with the obligations incurred by their predecessors.
“Every euro of debt taken on today will have to be repaid by future generations,” the ruling coalition claims.
However, party leader Christian Lindner’s reluctance to consider any relaxation of the norm while he was finance minister under Scholz put him at odds with his coalition partners and contributed to the government’s demise.
– What about criticism? –
Critics blame the brake for impeding investment in areas such as defence, as US President Donald Trump urges Europe to increase funding, as well as infrastructure issues ranging from late trains to poor internet.
Other concerns, such as decarbonising the economy, necessitate significant governmental spending.
According to the Dezernat Zukunft think tank, meeting them will necessitate an increase in government spending of 782 billion euros ($811 billion) by 2030.
“It is almost certain (that the country) will take on more debt in the future for public infrastructure and defence,” said Klaus Baader, chief economist at Societe Generale in France.
The government established off-budget funds for expenditure in particular areas, such as defence and climate, prompting claims that they used accounting tricks to avoid the regulations.
In November, the constitutional court decided that the government had infringed the debt rules, notably by transferring funds from a coronavirus assistance fund to climate change investments.
The verdict ripped a hole in the coalition’s budget, escalating tensions over the brake.
– What happens after the election? –
Friedrich Merz, the centre-right opposition leader and frontrunner to become the next chancellor, has delivered confusing signals concerning the brake.
His CDU party believes it should continue, but he has periodically expressed an interest in modifying it in particular instances.
In a recent television debate with centre-left leader Scholz, he made ambiguous replies when asked about the subject, saying, “One can discuss anything, but certainly not at first.”
Scholz’s SPD, which some predict could form a coalition with the CDU, supports easing the tough requirements to promote investment, a position shared by the Greens.
Much will, however, rely on the formation of the next ruling coalition following the February 23 election.
If fringe parties like the far-right AfD and far-left BSW do well, mainstream parties may be unable to carry brake reform through parliament, which requires a two-thirds majority in both chambers.
