German Chancellor Olaf Scholz and Finance Minister Christian Lindner have both expressed skepticism about reforming the country’s ‘debt brake’. The debt brake, which limits public deficits to 0.35% of gross domestic product, is constitutionally enshrined and would require a two-thirds majority in both houses of parliament to reform. Despite some regional politicians raising the possibility of reform, Scholz has stated that he believes the issue is being overestimated and that any reform would not be possible in the near future. Lindner, a known supporter of the debt brake, defended it as a measure to curb inflation.
The debate over reforming the debt brake was reopened after the Mayor of Berlin, Kai Wegner, from the conservative Christian Democratic Union (CDU), announced an initiative to reform the debt brake. State leaders have shown openness to reform, especially since the states are no longer allowed to incur any new debt unlike the federal government. The International Monetary Fund suggested that Germany could raise its debt brake from 0.35% of GDP to 1.35% while still reducing its debt/GDP ratio.
While Scholz and Lindner remain skeptical about reforming the debt brake, Bundesbank president Joachim Nagel has stated that adjustments are possible. He mentioned that under certain conditions, such as the debt curve in Germany slipping below 60%, higher deficit ratios could be considered. Nagel emphasized the importance of the debt brake in improving financial stability in Europe but also acknowledged the possibility of making adjustments based on specific circumstances.
The debate over reforming the debt brake in Germany is ongoing. While there are differing opinions among political leaders, it is clear that the issue is complex and requires careful consideration. The balance between maintaining financial stability and allowing for necessary investments in the public budget is crucial. It remains to be seen how the debate will unfold in the coming months and whether any significant reforms to the debt brake will be implemented.