Financial advisors linked to Klingbeil urge caution when considering relaxation of debt limit regulation
The German government is currently grappling with the challenge of reconsidering borrowing limits and spending priorities, as a projected €172 billion fiscal gap looms by 2029 [1][4]. This pressure has led to the establishment of a commission to develop proposals for reforming the debt brake by the end of the year.
Prominent members of this commission include Ifo President Clemens Fuest, finance professor Thiess Büttner, and former economic expert Volker Wieland [5]. Their role is crucial in guiding the debate on reforming the debt brake, which centers around finding a balance between increased public investment to foster growth and the constitutional constraint of the debt brake designed to limit structural deficits.
The SPD-led government, under Chancellor Olaf Scholz, is pursuing ambitious investments and some fiscal consolidation. Finance Minister Lars Klingbeil emphasizes growth, fairness, and investment in jobs, innovation, and social infrastructure [3][4]. Klingbeil supports record-high investments funded in part by off-budget funds, a move criticized by some as sidestepping the debt brake and masking borrowing levels.
On the other hand, Chancellor Friedrich Merz (Union) remains committed to the constitutional debt brake for the core budget. While he has allowed some relaxation of borrowing limits to boost defense and infrastructure, Merz is considering spending cuts, including reductions in unemployment benefits and elimination of subsidies, to manage the deficit [1][5]. Merz's government coalition is exploring options to strike a balance between revitalizing the economy through investment and maintaining fiscal discipline.
Economic experts, including Veronika Grimm, member of the Council of Economic Experts, have expressed concern about sustainable debt levels despite investment needs [1]. They suggest surgical reforms to avoid raising debt thresholds arbitrarily and emphasize the importance of stabilizing debt below 90% of GDP and eventually reducing it towards 60% [2]. Analysts at Bruegel warn that increased borrowing for permanent spending (like defense) might be politically expedient but economically undesirable [2].
The advisory board at the German Ministry of Finance has issued a warning against further easing of the debt brake, fearing that Germany could violate EU guidelines if the debt brake is not maintained [6]. This warning comes after billions in loans were recently approved. The advisors also caution that accumulating disproportionately high debt could jeopardize the stability of the euro [6].
Meanwhile, the coalition partners, SPD and Union, have different views on the debt brake. The SPD sees it as an investment brake and wants easing, while the Union wants to maintain the rules [7]. The debate on reforming the debt brake is ongoing, with differing opinions between the coalition partners [2].
In the midst of this debate, the members of the debt brake commission, including Clemens Fuest, Thiess Büttner, and Volker Wieland, are urging that the planned debate on reforming the debt brake be used to improve its effectiveness [2]. The commission's formal proposals for debt brake reform are expected in 2026, coinciding with ongoing budgetary and structural reform debates [1].
References: 1. BBC News 2. Financial Times 3. Reuters 4. Deutsche Welle 5. Der Spiegel 6. Handelsblatt 7. Politico
The commission tasked with reforming the debt brake includes Ifo President Clemens Fuest, finance professor Thiess Büttner, and former economic expert Volker Wieland, who play a crucial role in steering the discussion on balancing increased public investment for business growth and adhering to the constitutional constraint of the debt brake [2, 5]. The finance minister, Lars Klingbeil, advocates for record-high investments, partially funded by off-budget funds, a move that some perceive as bypassing the debt brake and obscuring borrowing levels [3, 4].
