display

No, he would not have spoken to Helge Braun beforehand, says Lars Feld, head of economic affairs and chief economic advisor to the federal government.

In fact, the Chancellery Minister's proposal for a further suspension of the debt brake reads as if he were guided by a proposal from the annual report of the economic wise men, which was presented in November.

So you could read weeks ago what, with Braun, a high-ranking CDU politician is now making his own for the first time.

On page 140 of the expert report it says: "Due to the particular financial policy challenges in the context of the corona pandemic, a new transitional phase of the debt brake could be considered to overcome it."

The debt brake was once considered irrevocable

display

The phase between 2010 and 2016, when the debt brake was gradually introduced for the federal budget after the experience of the financial crisis, provided for a gradual reduction in permissible new borrowing.

It was precisely this idea that Braun took up in a guest article for the “Handelsblatt” - to the surprise and astonishment of many party colleagues and economists.

The debt brake anchored in the Basic Law was considered as irrevocable for the federal budget in Union circles, just as the black zero was once.

The suspension of the brake in 2020 and 2021 should remain an exception because of the pandemic.

According to the Basic Law, this is permitted in “exceptional emergency situations”.

It should apply again in 2022, so far the CDU and CSU have said.

In contrast to the black zero, the debt brake does not have to correspond exactly to the income; a small amount of new borrowing is allowed.

display

Braun is now arguing that the limited scope for new borrowing in the coming years will not be sufficient, even with otherwise strict spending discipline.

That is why he wants to combine a recovery strategy for the economy in Germany with an amendment to the Basic Law that "provides for a reliable degressive corridor for new debt and prescribes a clear date for the return to compliance with the debt rule".

In the first few years after the pandemic, a higher rate should therefore be allowed, which approaches the starting rate with each additional year.

display

From Braun's point of view, a further relaxation of the existing debt rule is necessary so that “Germany can build on the economic success of recent years”.

This is the only way to prevent tax increases and stabilize social security contributions at a maximum of 40 percent by the end of 2023, writes the close confidante of Chancellor Angela Merkel (CDU).

After much criticism from within his own party, Braun made it clear via the short message service Twitter that he only wanted to prevent the emergency clause in the Basic Law from being dealt with on the way back to the black zero with a legally stipulated transition phase.

He loves the debt brake.

Here you will find content from Twitter

In order to interact with or display content from Twitter and other social networks, we need your consent.

Activate social networks

I consent to content from social networks being displayed to me.

This allows personal data to be transmitted to third party providers.

This may require the storage of cookies on your device.

More information can be found here.

What effect his proposal could have can be read in the expert report.

Put simply, according to the Basic Law, the federal government may take on new debts of 0.35 percent of economic output, i.e. gross domestic product (GDP), per year.

The economic wise men have now looked what happens if politicians leave new debt above the 0.35 percent threshold in the next two years.

The economic wise men come to the following conclusion: If the debt leeway in 2022 is one percent instead of 0.35 percent, the federal government may take on new debt of 43 billion euros instead of 24 billion euros.

In 2023 and with an assumed GDP share of 0.5 percent, it would be 23 billion euros instead of just under 13 billion euros.

For the years 2022 and 2023 alone, the federal government could take on almost 30 billion euros more new debt under this model than would be possible under the rules that were previously possible.

At this point in time, such a calculation can only provide a rough idea of ​​how such a transition phase proposed by Braun would actually affect the leeway.

display

If the economy recovers slowly from the pandemic, the leeway is greater even under the previous debt rule.

If it goes quickly, the scope also shrinks quickly.

Lars Feld demands that the federal government first touch reserves

Lars Feld attaches importance to the observation that the model with the transition phase is only one of several suggestions made by him and his four fellow economists in the report.

"There are better alternatives," says Feld.

One result from the high reserves that the federal government has built up and which have not yet been used.

In addition, an extension of the repayment periods could bring the necessary annual new debt down.

So far, the federal government has had a repayment period of 20 years, which means an annual repayment of up to twelve billion euros.

The 20 years are not prescribed in the Basic Law, it can be more.

Here you can listen to our WELT podcasts

We use the player from the provider Podigee for our WELT podcasts.

We need your consent so that you can see the podcast player and to interact with or display content from Podigee and other social networks.

Activate social networks

I consent to content from social networks being displayed to me.

This allows personal data to be transmitted to third party providers.

This may require the storage of cookies on your device.

More information can be found here.

“Everything on shares” is the daily stock market shot from the WELT business editorial team.

Every morning from 7 a.m. with the financial journalists Moritz Seyffarth and Holger Zschäpitz.

For stock market experts and beginners.

Subscribe to the podcast on Spotify, Apple Podcast, Amazon Music and Deezer.

Or directly via RSS feed.

From Feld's point of view, a change in the constitution, as proposed by Braun, can only be achieved if concessions are made to other parties.

"An amendment to the constitution puts the ax to the debt brake," says Feld.

As soon as you do this, all other options for perforating the debt brake would also be on the table in order to get the majorities required for the amendment to the Basic Law.

For example, there are proposals to exclude government investments from the amount of permissible new borrowing or to set up an extra fund for investments in digitization, education and the climate, the expenditure of which would be less strictly controlled.

Source: WORLD infographic

display

"The signal to the outside world would be clear: Germany no longer attaches importance to a return to solid financial policy," says Feld.

Last but not least, this would have unfavorable effects on the European Monetary Union, in which Germany is the most important liability provider and guarantor of the ECB's balance sheet.

The Düsseldorf economist Jens Südekum has long been a critic of the debt brake.

He welcomed the initiative of the head of the Chancellery: "The advance by Helge Braun is a first step in the right direction," says the professor of international economics at Heinrich Heine University.

If the federal and state governments were to return to the debt brake as early as 2022, there would be a great risk of putting the brakes on spending far too early.

“Then the state will stifle the economy and could plunge the whole of Europe into a second wave of recession.

Helge Braun wants to prevent that first, ”said Südekum.

Südekum criticizes design flaws in the debt brake

But according to Südekum, the reforms must not end there.

“The debt brake has other problems: It sets a strict upper limit for the state deficit without asking what debt should be incurred for or what the interest rate is,” he says.

Neither of these makes sense from an economic point of view.

So far, Helge Braun has not said anything about these errors.

"But if the Union agrees to a change in the Basic Law anyway, then the debt brake should be repaired thoroughly." He sees this as an important task for the coming legislative period.

The fear of Lars Feld, who heads the ordoliberal Walter Eucken Institute belonging to the university in Freiburg, that with a change in the constitution, the debt brake in its current form would be history, confirm the statements of Michael Hüther, Director of the Institute of German Economy (IW) .

display

"Basically, Helge Braun's move opens the debate and intensifies what has been observed for two years, namely that the camp thinking is breaking open with regard to the debt brake," says Hüther.

The move by the head of the Chancellery was fundamentally important, but it had to be "spelled differently than through a multi-year, degressive suspension of the debt brake".

Two years ago, Hüther proposed the Germany Fund for Investments, which could be set up regardless of the debt brake.

In any case, it will hardly be possible to stop the debate about the future of the debt brake.

In an initial reaction, Federal Finance Minister Olaf Scholz (SPD) spoke of an "interesting guest contribution".

But he also pointed out that this proposal presupposes a broad bipartisan consensus.

This is hardly realistic before the election.