Significance of the debt brake for the federal budget: The view of a financial expert.

Significance of the debt brake for the federal budget: The view of a financial expert.

According to a report by www.bild.de,

The traffic light government in Germany is facing dramatic hours as Chancellor Olaf Scholz, together with his ministers Robert Habeck and Christian Lindner, has to finalize a constitutional budget for 2024. A central problem here is compliance with the debt brake, which requires additional savings amounting to billions. There is open resistance to the debt brake on the grounds that it hinders investment and thus harms jobs and prosperity. But according to Prof. Niklas Potrafke from the ifo Institute, the opposite is the case. Countries with a debt brake grow on average 15 percent faster and thus ensure more prosperity and higher wages. The debt brake was introduced in Germany in 2011 and states that the federal government is hardly allowed to take on any debt in good times, but billions in loans are allowed in bad times.

The scientific report from the Ministry of Economic Affairs speaks for the first time in favor of far-reaching adjustments to the debt brake. In particular, net investments should be able to be financed as desired through debt. Prof. Hans-Werner Sinn emphasizes that the debt brake also has the advantage of dampening the inflation shock. Not only he, but also Prof. Veronika Grimm warns against overturning or weakening the debt brake, as it provides the state with sufficient reserves to step in in emergencies. The debt brake therefore has positive effects on economic growth, prosperity and government loans. If it were to be repealed or weakened, it could cost jobs and prosperity in the long term and fuel inflation. Given these findings, it is important that the traffic light government carefully considers what measures it takes regarding the debt brake in order to avoid long-term damage.