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Debt brake and black zero: resistance in the Bundestag

2019-09-29T07:47:14.419Z


The debt brake is in the Basic Law, SPD Finance Minister Scholz sticking to the black zero: on the other hand, forming an alliance in the Bundestag across camps - here are MPs from the SPD and the Left.



The issue of new debt in the Bundestag blows up the camps of coalition and opposition. An event with parliamentarians from both camps is planned for the end of November. Finance experts from the SPD and the Left Party want to go head-to-head against the debt brake, the provision in the Basic Law that allows the federal government to borrow up to 0.35 percent of gross domestic product. In absolute terms: currently around 12 billion euros.

The participants from the SPD are in their fury against the Basic Law regulation, especially by one incited: Just a Comrade - Finance Minister Olaf Scholz - exceeded the target and holds firmly to the black zero, ie a budget without new debt.

Filip Singer / EPA-EFE / REX

Finance Minister Scholz: The black zero is not up for debate for him

The "expert discussion" in the Bundestag on 27th November is under the motto "Investing - Will the debt brake Germany's future?" Organizers are the SPD finance politician Cansel Kiziltepe, her parliamentary group colleague Michael Schrodi and parliamentarians Fabio de Masi and Victor Perli of the Left Party.

At the event, they invited prominent economists. There are Michael Hüther, the rather liberal boss of the employer-oriented Institute of German Business (IW), and Jens Südekum, a left-wing economics professor from the University of Düsseldorf. Both have been ranting for months against the debt brake.

The economists' argument is that the regulation restricts the state in its ability to spend money on growth-enhancing investments. That was fatal, especially in the face of low interest rates. At present, the government can borrow for virtually no money, so investments would be self-financing because they give a return on the economy. The renunciation on it means loss of wealth.

"Germany buries its future under the debt brake"

So much unity is rare among economists of different faiths, but also among social democrats and leftists. "The black zero is in my view a fetish that is not tenable," says co-organizer Kiziltepe. "We need a pact for investment instead of black zero and debt brake." The federal and state governments have not invested enough by far in recent years.

Similarly sees her colleague di Masi of the left-wing fraction. "Germany buries its future under the debt brake," he says. It's crazy to no longer invest in low interest rates. "Rails, hospitals or universities also use our grandchildren, so it makes sense to extend their funding by borrowing." The state must invest now and not only when the crisis comes. Investments take time to take effect. What is needed is a golden rule that allows loans in the amount of investment.

Exactly this - only as much debt as investment - but was exactly the default of the Basic Law, before the debt brake came into force. The only problem was that the federal government regularly took on more debt than it spent on investment and justified this with exceptional economic situations.

The rules of debt making

debt ceiling

"The budgets of federal and state governments are in principle to be compensated without income from loans", says Article 109 of the Basic Law. In the future, the federal states will no longer be allowed to make indebtedness independent of the economic cycle, while the federal government will limit it to 0.35 percent of the gross domestic product.

Valid since

For the federal government since 2016, for the states from 2020 onwards.

liability

The debt brake has constitutional status. In economic crises or emergencies such as a natural disaster, the debt may be higher. But there must be a binding plan for the repayment of the loans.

Debt scope for Germany (measured by GDP 2018)

For the federal government about 12 billion euros.

implementation

So far, the federal government has kept the debt brake.

Maastricht criteria

The convergence criteria of the Maastricht Treaty must be met by countries wishing to adopt the euro. According to this, the new debt (deficit) may amount to a maximum of three percent and the total debt to a maximum of 60 percent of the gross domestic product. Thanks to the Stability and Growth Pact (SGP), these guidelines must be adhered to even after joining the euro.

Valid since

1993 (Maastricht Treaty) and 1999 (SWP).

liability

Although the Maastricht criteria are enshrined in EU law, they have often been violated. The EU Commission has therefore launched numerous so-called deficit procedures, but without financial consequences.

Debt scope for Germany (measured by GDP 2018)

Nearly 102 billion new borrowing and a good 2 trillion total debt.

implementation

Germany violated early against both rules. In recent years, however, Germany has always complied with the deficit burden. The total debt falls in 2019 for the first time in 17 years again below 60 percent.

fiscal Pact

The Fiscal Compact was adopted as a tightening of the Stability and Growth Pact, which was unable to prevent the European debt crisis. Instead of only meeting the three percent limit of the Maastricht criteria, the signatories of the fiscal compact should aim for balanced budgets in the medium term. The indebtedness of the general government, which is independent of the economic situation, may amount to a maximum of 0.5 percent of the gross domestic product. If the total debt level is well below 60 percent, this limit increases to 1.0 percent.

Valid since

2013

liability

The signatory states must anchor their goals in the constitution, as Germany has done with the debt brake. The Fiscal Compact provides for the first time the possibility of financial sanctions for non-compliance. So far, this possibility has not been used.

Debt scope for Germany (measured by GDP 2018)

Nearly 17 billion, as long as the total debt is over 60 percent.

implementation

So far Germany has complied with the debt rules of the Fiscal Compact.

Black zero

If government revenue and expenditure are the same, the bottom line is the proverbial black zero. New debts are not necessary in this case. We also speak of a balanced budget.

Valid since

-

liability

The black zero is not a legal requirement. As a common goal of the Union and the SPD, however, it finds itself in the current coalition agreement.

Debt scope for Germany (measured by GDP 2018)

none

implementation

For the first time in 45 years, the black zero was reached in the federal government in 2014 and has been held ever since.

At least one participant in the event does not want to go back there on November 27th. In addition to the Green MEP Lisa Paus and the CDU budget expert André Berghegger is invited as a discussant. He stands, come what may, iron to debt brake. "I will defend the debt brake at the event, it has proven itself."

Berghegger considers it wrong to abandon the regulation right at the first economic headwind. In the case of a recession, it offers sufficient scope for a higher level of new debt. "The debt brake is an essential element of sustainable fiscal policy."

In all Alliance efforts: The attack on the Basic Law rule has little chance of success. Their abolition would require a two-thirds majority in the Bundestag and Bundesrat. It is currently not in sight.

Source: spiegel

All news articles on 2019-09-29

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