DW: The German debt brake is coming back

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It is the first budget draft by Christian Lindner. His goal from the outset was to comply with the debt brake rule. He did it for 2023, at least on paper.

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Liberal German Finance Minister Christian Lindner may have been warning Germans for months of hard times ahead and a “loss of prosperity”, but he has never stopped publicly expressing his deep conviction that the constitutional rule of the debt brake, which effectively blocks a perpetuation of the public debt, should be observed, even in times of successive crises.

The cabinet of the coalition government of Social Democrats-Greens-Liberals has in the first phase approved the draft budget of Lindner for 2023. This is essentially the first “own” draft for the public finances of Germany, since the budget of 2022 even brought the signature of his predecessor in the Ministry of Finance and current chancellor, Olaf Solz.

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But the great success of Christian Lindner is that he managed to pass the provision for observing the constitutional rule of the debt brake (Schuldenbremse) for the following year. And this after a difficult year and a literally emergency budget, initially due to the coronavirus pandemic and then the war in Ukraine.

Brake on borrowing and tackling inflation

According to Article 109 of the German Constitution “the debt brake provides that the budgets of the German states and the federal government should not be balanced with loan proceeds”.

Compliance with the debt brake presupposes the utilization of the country’s reserve, while a small amount of borrowing is also allowed. This would amount to 17.2 billion euros under the Lindner draft – as opposed to the 140 billion forecast for this year due to the new conditions created by the war in Ukraine. According to the Lindner plan, approximately 40 billion will therefore come to the new budget from the reserve of the previous government. For Christian Lindner, the goal is also to fight inflation and that is why the 2023 budget must necessarily move in this direction as well.

Christian Lindner, however, stated that the 2023 budget “will reflect the war in Ukraine and the pandemic” emphasizing, however, that there is no room for a third relief package.

Superficial triumph?

However, the first reactions were not lacking, even from members of the coalition government. For example, Dennis Rode, representative of K.O. of the Social Democrats on budget matters spoke of “volatile variables” that could affect plans for next year. Thus, he considers it correct to review every now and then all the new elements that arise during the negotiations for the next budget.

For his part, Stephan Kertzel from the Board of the German Trade Union Federation calls on Lindner to “come to his senses”, otherwise “social peace” will be endangered. Kertzel believes the debt rule should not apply from 2023 because relief packages and investment “will urgently need to be financed by new borrowing”.

Finally, the Süddeutsche Zeitung comments that Lindner’s “triumph” regarding the achievement of a normal and not an emergency budget for 2023 is only “superficial”, despite the fact that the debt brake will be respected “at least initially”. This is because, as he points out, “Lidner’s calculation only works because he has received 40 billion from an old reserve. At the same time the federal government has to look for 30 billion euros for the year alone in order to service its debt. The times, in which the federal debt was a negligible component of the budget, are gone.”

Dimitra Kyranoudis, Berlin

Source: Deutsche Welle

Source: Capital

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