The Federal Constitutional Court's debt brake decision is causing discussions in Berlin - what does that mean for the German economy?

The Federal Constitutional Court's debt brake decision is causing discussions in Berlin - what does that mean for the German economy?

The Federal Constitutional Court's decision on the debt brake caused a stir in Berlin. According to experts, the debt brake in its current form is seen as too rigid and prevents necessary investments, especially in the areas of climate change and future technologies. Thomas Mayer, founding director of the Flossbach von Storch Research Institute, sees the ruling as a return to “tough budget restrictions” that call for budgetary discipline. He warns that politicians view debt as a solution for major transformations, which can lead to over-indebtedness in the long term. Following the Hungarian economist János Kornai, Mayer advocates a restrictive financial policy in order to avoid inefficient spending.

According to a report from www.cicero.de, Josefin Meyer, an employee of the German Institute for Economic Research, notes that too strict austerity policies can also bring political and economic costs. She warns of a polarization of society and a rise in extreme parties due to drastic austerity measures. It emphasizes the need to stretch long-term investments across generations and to clarify the definition of good investments. Meyer also addresses the difficulty of defining the term “investment” and the difference between positive government net assets and debt.

Given the enormous challenges of demographic change and climate transformation, Mayer and Meyer believe it is unrealistic to believe that these problems can be solved by taking on debt. They emphasize the need for more realistic and long-term financial policies to secure the future of the economy.

The discussion about compliance with the debt brake seems petty in international comparison, as other industrialized countries are taking on significantly more debt in order to meet their economic and social challenges. It remains to be seen how German public finances and the financial sector will react to the Federal Constitutional Court's decision and the debate about the debt brake.