Expert calls for more flexible regulations for the debt brake

Expert calls for more flexible regulations for the debt brake

According to a report by www.tagesschau.de,

Economists have identified structural weaknesses in the debt brake and are calling for flexible regulations. The debt brake is too strict and economically inefficient, according to the chairwoman of the Advisory Council for the Assessment of Overall Economic Development, Monika Schnitzer. She advocates comprehensively relaxing the debt brake regulations in order to be able to undertake future-oriented public spending without undermining the sustainability of public finances. The economists see three design weaknesses in particular: a lack of transitional rules after an emergency, the unnecessarily low debt limit and the economic component that is susceptible to revision. The reform approaches aim to increase flexibility and create scope to adapt the debt brake to new circumstances.

The impact of easing the debt brake could be significant in the financial sector. Such easing would mean more leeway for the government to borrow, which could boost growth and the economy. However, this could also lead to higher national debt and long-term financial risks. Expanding credit options could initially strengthen the state's investment assets, but there is a risk that the long-term sustainability of state finances will be impaired.

Finance Minister Christian Lindner defended his course against easing the debt brake and emphasized the economic sense of adhering to the debt brake. It remains to be seen how the debate about a possible reform of the debt brake will develop and whether a two-thirds majority can be achieved in the Bundestag to make changes to the regulation. The financial sector will have to monitor developments closely and prepare for possible changes in the economic policy landscape.