Energy News Beat
BERLIN – Germany’s usually hawkish central bank President, Joachim Nagel, is getting more serious about reforming the country’s constitutional deficit rule, pushing beyond technical changes.
Germany’s strict rule for new borrowing, enshrined in the constitution, has been a major political point of controversy over the last few years.
The rule, known as the ‘debt brake’, limits structural deficits of the federal government to 0.35% of GDP while forbidding structural deficits for the regional governments, Länder, altogether.
Disagreements over the debt brake have also been the reason for the collapse of the former three-party government coalition last November. But a big overhaul may be finally here.
“We have to work on the overall concept of the debt brake,” Bundesbank President Nagel said at a side event of the World Economic Forum’s annual meeting in Davos, German newspaper FAZ reported.
The Bundesbank has traditionally taken a hawkish stance on both monetary and fiscal policy, with a strong focus on price stability.
However, it has recently changed this stance, suggesting a “stability-oriented reform” that would allow more public investment if the overall public debt level reaches a level below the EU’s target of 60% of GDP.
In Davos, Nagel said a reform should go beyond “just small changes.”
Parties, however, see such debt rule change differently. The left side of the political spectrum seeks a major reform to allow for more public investments.
Instead, the Christian Democrats support the status quo in its election manifesto, although its party leader and likely next Chancellor, Friedrich Merz, has recently signalled openness for reform, adding strict conditions on how the additional debt should be spent.
Meanwhile, Chancellor Olaf Scholz said a “moderate” reform of the debt brake could allow additional investments of €5 to €10 billion annually, which, however, dwarf Berlin’s additional spending needs.
Germany’s public debt currently stands at 62%, according to Eurostat data, thus twenty points below the EU average and much lower than in other G7 economies – all of which have a government debt level of above 100% of GDP.
(MM)
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The post Germany’s central bank pushes for a U-turn on debt rules appeared first on Energy News Beat.
