Debt brake (Germany)

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In Germany , the debt brake is a constitutional regulation that the Federalism Commission decided at the beginning of 2009 in order to limit Germany's national debt and which has been making binding requirements for reducing the budget deficit since 2011 .

With the debt brake in the constitution the "structural" is, therefore, of the economic independent, government debt for countries banned and for the federal government to a maximum of 0.35 percent of nominal gross domestic product limited. Exceptions for natural disasters or economic crises are still provided. In addition to the structural new borrowing, a “cyclical financial balance ” is permissible, which is positive in an upswing and negative in a downswing and is determined using a specific formula. This is to ensure that the automatic stabilizers work.

National debt in Germany

At the end of 2016, the federal government, states and municipalities as well as their extra budgets were in debt with around 2,006 billion euros, the largest debtor with 63% is the federal government, 30% is attributable to the federal states and 7% to the municipalities. The government debt ratio in Germany has been declining since peaking at 82.5% in 2010 again a downward trend. The International Monetary Fund assumed that Germany's national debt ratio would decrease significantly to 60.5% by the end of 2019, with a debt level of only 1,995.8 billion euros. This would mean that Germany would almost reach the Maastricht criterion of 60% or less again. However, due to the one-off costs of the 2020 Corona crisis , the national debt will probably rise again to 75%.

Historical national debt ratio of Germany from 2002 to 2015 including estimate by the IMF by 2021

Introduction of a debt brake

In view of this debt situation, the federal government has decided to introduce a debt brake; In 2009 the debt brake was approved by a two-thirds majority in both the Bundesrat and the Bundestag . This decision is intended to ensure that public budgets are financed without a structural deficit (federal states) or with a very low structural deficit (0.35% of GDP, federal government). A constitutional amendment was necessary to introduce this debt brake: The debt brake was regulated in Article 109, Paragraph 3 of the Basic Law (GG). In the meantime, some federal states have adopted the debt brake in their state constitution , Schleswig-Holstein as the first state. As a result of the state debt brake, the structural, i.e. not cyclical, annual net borrowing by the federal government should amount to a maximum of 0.35% of the gross domestic product . For the federal states , net borrowing is completely prohibited. Exceptions are allowed in the event of natural disasters or severe recessions . A transitional regulation in Art. 143d (1) GG provides for the first-time application of the new regulations in Art. 109 and Art. 115 GG for the 2011 budget year. Compliance with the 0.35 percent limit is mandatory for the federal government from 2016, while the federal states' ban on net borrowing will come into force in 2020.

The Bundestag approved the regulation and on May 29, 2009 initiated several constitutional amendments necessary for this. On June 12, 2009, the Federal Council also voted for the constitutional amendment with a two-thirds majority . The states of Berlin, Mecklenburg-Western Pomerania and Schleswig-Holstein did not agree to the regulation. The law amending the Basic Law ( Art. 91c , Art. 91d , Art. 104b , Art. 109 , Art. 109a , Art. 115 , Art. 143d ) came into force on August 1, 2009 ( Federal Law Gazette I p. 2248 ).

Debt rule for federal and state governments

Fundamentally, the budgets of the federal and state governments are to be balanced without loans ( Article 109.3 sentence 1 GG). This requirement is based on the medium-term goal of the structurally balanced budget from the European Stability and Growth Pact . The result of a policy that, in accordance with the constitutional requirement, succeeds in precisely avoiding new borrowing is also referred to by the colloquial term "black zero".

Exceptions to the borrowing ban

Exceptions to the borrowing ban are provided for in the list of federal and state budgets

  • for the symmetrical consideration of an economic development deviating from the normal situation (economic component), which enables countercyclical borrowing in the downturn ( countercyclical financial policy , Art. 109 Para. 3 Sentence 2 GG). The calculation of the deviation from the normal position is controversial. A formula is under discussion in which u. a. enters an estimated output gap.
  • for the federal and state governments in cases of natural disasters or exceptional emergency situations, which should also include the financial crisis from 2007 , with simultaneous determination of corresponding repayment regulations ( Article 109, Paragraph 3, Clauses 3 and 4 of the Basic Law).
  • In specifying the basic requirement of the medium-term balanced budget, it is still permissible for the federal budget according to Article 109.3 sentence 4 GG to claim income from loans up to 0.35 percent of the nominal gross domestic product (GDP) annually take (structural component).

Art. 115 GG and an implementing law regulate further details for the federal government . A structural component is not provided for the federal states, i.e. the basic requirement is only met if the budget does not include any income from loans. Countercyclical borrowing to control economic fluctuations is permitted.

Specification for the federal government

If the actual borrowing deviates from the credit limit permitted under Art. 115 GG, deviations are to be recorded in a control account. The negative balance of the control account should not exceed 1.5 percent of the gross domestic product (GDP); if it is exceeded, the balance of the control account must be reduced in line with the economic cycle. A resolution by the majority of the members of the Bundestag is required to make use of the exemption in the event of natural disasters and exceptional emergency situations.

Transitional arrangement

A transitional provision in Article 143d (1) of the Basic Law provides for the first-time application of the new provisions in Article 109 and Article 115 of the Basic Law for the 2011 budget year; compliance with the requirement of the balanced budget is mandatory for the federal government from 2016 for the countries from 2020.

Consolidation Aids

As an aid to compliance with the above Debt regulations five federal states received financial support amounting to 800 million euros annually for the period 2011 to 2019, for a total of 7.2 billion euros ( Free Hanseatic City of Bremen 300 million euros, Saarland 260 million euros, Berlin , Saxony-Anhalt and Schleswig-Holstein 80 million euros each year). The federal and state governments bear half of the funding for this aid. A prerequisite for the granting of aid is adherence to a consolidation path that enables the countries concerned to balance their budgets by 2020 at the latest and then comply with the new debt regulation ( Art. 143d (2) and (3) GG). The details on this are regulated in the Consolidation Aid Act and specifically agreed in administrative agreements between the federal government and the individual recipient countries.

Avoidance of budget emergencies

In addition to the new debt rule, an early warning system is being set up to avoid budget crises ( Art. 109a GG). The Stability Council, founded in 2010, monitors the budget management of the federal and state governments, in particular the consolidation progress of the five recipient countries mentioned above. To this end, the financial situation of the federal and state governments is presented and checked annually. In the event of budget crises, the Stability Council should agree on restructuring programs. The resolutions of the Stability Council and the advisory documents on which they are based are published.

How the debt brake works

In contrast to the Swiss debt brake , the name of which was the inspiration for the German variant, the German debt brake is not a budget rule that insists on repaying the loans taken out. The only aim is to reduce the maximum amount of net borrowing.

The previously (and still) valid budget rules for Germany are set out in the European Stability and Growth Pact of the Maastricht Treaty . The so-called Maastricht criterion allows a maximum net borrowing of 3.0 percent of the gross domestic product. Exceptions are provided for times of economic weakness, which have already been used several times.

The debt brake divides debt into a structural and a cyclical component. The cyclical component should make it possible in the event of economic downturns to raise the upper credit limit and take on further debt; in the event of an economic downturn, this debt must then be repaid. Structural debts will be prohibited to the federal states from 2020; from 2016, the federal government may still borrow a maximum of 0.35% of GDP as structural debts. A stability council is to monitor the budgets of the federal and state governments and, if necessary, initiate restructuring procedures. The members of the stability council are the finance ministers of the federal states, the federal finance ministers and the federal economics ministers. Deviations from these requirements were permitted for the federal government until 2015 and for the federal states until the end of 2019. Financially weak countries were supported with 800 million euros annually until 2019 in order to be able to comply with the debt brake requirements. Exceptional clauses allow the federal government to raise additional funds in special and catastrophic cases.

The permissible economic deficit is to be calculated according to the regulations of the European Commission . It should be zero over the economic cycle.

  • In the upswing, the state should achieve cyclical financial surpluses, which should be greater the stronger the economy is in the upswing or the larger the positive output gap. The economic deficit can be greater, the deeper the economy is in the recession or the greater the negative output gap. This enables the state to take on more debt during the recession (countercyclical fiscal policy). The exact location of the economy is determined using a long-term growth path, the so-called potential GDP , which is estimated from past data. The difference between GDP and potential GDP in percent is known as the output gap.
  • According to the formula, the cyclical deficit is smaller , the more government revenues (including social security contributions) react to cyclical fluctuations - this elasticity of government revenues is estimated on the basis of data from the past. So if government revenues automatically increase during the upswing (based on past experience), the government is required to generate a larger surplus of revenues. If government revenues automatically decline in the downturn, the government is granted greater debt.
  • The economic deficit is according to formula all the greater , the more the State issues (eg expenditure on unemployment.) To the cyclical fluctuations react - said elasticity of public expenditure is estimated on the basis of data of the past. So if government spending (for unemployment) automatically falls during the upswing (based on past experience), the government is required to generate a higher income surplus. If government spending automatically rises in the downturn, the government is granted greater debt.

Debt brake and federalism

Ballot for the referendum in Hessen

Some constitutional lawyers have raised concerns about the constitutionality of a nationwide debt brake. According to their interpretation, a structural ban on new indebtedness undermines the budgetary autonomy of the federal states as defined in Art. 109 GG and the federal principle .

The approval of the Bundesrat and efforts to amend the constitution in individual federal states speak against this argument. Thus, in March 2011, a recording of the debt brake in the constitution of the State of Hesse via referendum decided. The vote took place together with the local elections. On May 19, 2010, the state parliament in Schleswig-Holstein included a debt brake in the constitution of Schleswig-Holstein . On December 31, 2010, the state parliament in Rhineland-Palatinate inserted a new Art. 117 with a debt brake into the state constitution . Mecklenburg-Western Pomerania, Hamburg and Bremen have also included the debt brake in their constitutions.

Overview of regulations on debt brakes in the state constitutions
country Debt brake Come into effect Constitutional provisions
Baden-Württemberg Yes 05/26/2020 Art. 84
Bavaria Yes
since 09/15/2013 		01/01/2020 Art. 82
Berlin No
Brandenburg Yes 01/01/2020 Art 103
Bremen Yes
since January 29, 2015 		01/01/2020 Art. 131a-c and Art. 146
Hamburg Yes
since June 19, 2012 		01/01/2019 Art. 72 and 72a
Hesse Yes
since May 10, 2011 		01/01/2020 Art. 141 and 161
Mecklenburg-Western Pomerania Yes
since June 28, 2011 		01/01/2019 Art. 65 (2) and 79a
Lower Saxony No
North Rhine-Westphalia No
Rhineland-Palatinate Yes
since December 31, 2010 		01/01/2020 Art. 116 (3–5) and 117
Saarland No
Saxony Yes
since 07/11/2013 		01/01/2014 Art. 95
Saxony-Anhalt Yes March 20, 2020 Art. 99
Schleswig-Holstein Yes
since 07/22/2010 		01/01/2020 Art. 61 and 67
Thuringia No

Supervision of the debt brake by audit offices

The State Audit Office of the Free and Hanseatic City of Hamburg first published an advisory statement on September 3, 2014, “Monitoring Debt Brake 2014”. The budget policy of the Senate of the City of Hamburg with regard to the debt brake is assessed and provided with traffic light symbols in the criteria of net borrowing, circumvention options, sustainability, structural deficit, risks and opportunities as well as the strategy of the Senate. This report is to be updated annually.

Municipal debt brake

In addition to the above-described debt brake for the federal government and the federal states (state debt brake), there are also provisions in the municipal budget law of the states to limit municipal debts (municipal debt brake). A distinction can be made here between regulations to limit the taking up of credit / investment loans (investment credit debt brakes) and regulations to limit cash borrowing (cash credit debt brakes). Furthermore, some municipalities have voluntarily included debt limitation regulations in their main statutes (e.g. Jena, Mannheim) or have adopted a separate statute for this purpose (e.g. Hockenheim). In academia, as well as in some countries, the establishment of a so-called “ double municipal debt brake ” is also being discussed, the functioning of which is based on the coupling of a so-called “generational contribution” to the double budget adjustment. Such a debt brake model with a generational contribution z. B. the municipalities Taunusstein, Freudenberg and Stadtkyll.

In Germany there is a public discussion about debt relief for heavily indebted municipalities, as their debts severely limit their ability to act and investments. The SPD, for example, called for debt relief to be combined with stricter debt rules.

criticism

There are two main streams of criticism: on the one hand, the goal of limiting government debt is being questioned and, on the other hand, the suitability of the instruments.

Criticism of the goal

Individual economists, left- wing politicians , left-wing social democrats , the German Trade Union Confederation and the union-related Institute for Macroeconomics and Business Cycle Research voiced criticism of the economic compatibility of debt limitation rules .

Keynesian economists criticize the debt brake and the budget deficit view of cutting spending or increasing revenue using the macroeconomic equation for budget deficit:

Budget balance = current account balance - savings surplus

This equation is a trivial identity, according to which the balance of the national budget of an economy results from the current account balance (according to the national accounts, national accounts ) minus the surplus of the current savings of private households over the net investments of the economy. Balancing the budget therefore requires a lower household savings surplus or higher surpluses in foreign trade. With a balanced current account, the deficit in the state budget corresponds exactly to the savings surplus of private households.

In the long term, government debt in mature capitalism with a falling net investment rate by companies is macroeconomically necessary to support the economy. According to John Maynard Keynes , a balanced state budget combined with a balanced trade balance and insignificant net investments by companies would lead to the community being so impoverished that, in line with total debt, total savings also fall to zero. On the other hand, in order to enable a policy of full employment, a government deficit must and can be aimed for.

The separation of indebtedness into a structural and a cyclical component is controversial, as there are considerable methodological problems in determining normal economic activity and in calculating budget sensitivity. In times of good economic activity, the federal government also has to generate large surpluses, which is viewed as difficult due to fiscal asymmetries.

The debt brake as a means of reducing debt is controversial both at the federal and state levels. CDU / CSU , SPD , FDP and Bündnis 90 / Die Grünen are in favor of the debt brake and see it as an important instrument for reducing the state deficit. However, there are strong groups of opponents of the debt brake within the SPD and at Bündnis 90 / Die Grünen. The SPD is particularly critical of the definition of the reduction path, which is not based on real new debt, but on the higher new debt assumed for the summer of 2009 and thus increases the federal debt limit. In June 2011, the SPD therefore introduced a draft law to the Bundestag to use the actual structural deficit of 2010 as the starting point for the dismantling path. This change to Art. 115 GG was rejected by the Bundestag. The left rejects the debt brake. The trade unions and many social associations are also opposing the debt brake - in Hesse they have carried out a campaign against the debt brake. They fear that the debt brake will lead to a reduction in investment in education and the economy - a position that is also borne by the party Die Linke. In Hesse only a referendum made it possible to change the Hessian constitution and ensured the introduction of the debt brake in this state. The debt brake is approved by the employers' associations.

Criticism of the effect

Scientists criticize the fact that the debt brake continues to open gateways for increasing national debt in many places: For example, the German debt rule does not limit national debt, but only the federal and state debt. It also allows unlimited borrowing for state equity investments and does not provide for binding repayment periods for loans taken out in emergency situations. In addition, the calculation of the cyclical component gives the government leeway for further national debt.

Evaluation by experts

The majority of the council of experts assesses the overall economic development as positive. At the Ifo Economists Panel, which regularly surveys Germany's economics professors on current topics, the clear majority of the experts agreed to the debt brake in 2019, while 28% wanted the rule to be changed. A 2020 survey by the Federal Association of German Economists and Business Economists shows that 72% of economists consider the debt brake to be a good instrument.

The Bundesbank and the Federal Audit Office also support the debt brake and point out, among other things, that public investment has increased by a quarter since it was introduced.

literature

  • Daniel Buscher: The state in times of the financial crisis. A contribution to the reform of the German financial and budgetary regulations (federalism reform). Duncker & Humblot, Berlin 2010, ISBN 978-3-428-13166-2 .
  • Klemens Himpele: The feasibility of the debt brake in the federal states. (PDF) Vienna 2010.
  • Maxi Koemm: A brake on the national debt? Constitutionality and justiciability of the new national debt law. Mohr Siebeck, Tübingen 2011, ISBN 978-3-16-150964-3 .
  • Marius Thye: The new “debt brake” - On the new shape of the financial constitution after the federalism reform II. University Press Halle-Wittenberg, Halle 2010, ISBN 978-3-86977-021-5 .

Web links

Individual evidence

  1. ↑ Federation of Taxpayers e. V .: Debt ( Memento from March 4, 2010 in the Internet Archive )
  2. ↑ International Monetary Fund: World Economic Outlook Database, October 2014, General government gross debt (National currency, Percent of GDP)
  3. ↑ Germany's debts are increasing dramatically. April 9, 2020, accessed April 27, 2020 .
  4. ↑ Debt brake receives constitutional status Frankfurter Allgemeine Zeitung, June 12, 2009
  5. ↑ Law amending the Basic Law (Articles 91c, 91d, 104b, 109, 109a, 115, 143d) (GGÄndG) (at buzer.de)
  6. ↑ Volume 5, Issue 12 November 28, 2008 ECFIN COUNTRY FOCUS (PDF; 203 kB) "Germany: revisiting the budget rule" By Carsten Eppendorfer and Karolina Leib.
  7. ↑ Consolidation Aid Act (PDF)
  8. ↑ stabilitaetsrat.de
  9. ↑ Federal Ministry of Finance: Debt Brake Glossary ( Memento of March 4, 2011 in the Internet Archive )
  10. ↑ Archived copy ( Memento of March 5, 2016 in the Internet Archive ) (PDF)
  11. ^ Frankfurter Allgemeine Zeitung of February 8, 2009
  12. ↑ spd-fraktion-mv.de ( Memento from October 11, 2012 in the Internet Archive )
  13. ↑ landesrecht.hamburg.de
  14. ↑ radiobremen.de ( Memento from June 4, 2015 in the Internet Archive )
  15. ↑ jura.fu-berlin.de (PDF)
  16. ↑ hamburg.de
  17. ↑ debt brake, Hamburg
  18. ↑ haushaltssteuerung.de March 29, 2011
  19. ↑ haushaltssteuerung.de March 7, 2011
  20. ↑ jena.de ( Memento from April 28, 2015 in the Internet Archive ) (§ 6a)
  21. ↑ mannheim.de ( Memento from August 11, 2014 in the Internet Archive ) (§ 2 Paragraph 3)
  22. ↑ hockenheim.de ( Memento from September 24, 2015 in the Internet Archive ) (PDF)
  23. ↑ haushaltssteuerung.de
  24. ↑ Sitzungsdienst-taunusstein.de
  25. ↑ freudenberg-stadt.de (PDF)
  26. ↑ stadtkyll.de ( Memento from July 30, 2014 in the Internet Archive ) (PDF)
  27. ↑ Vivien Timmler, Benedict Witzenberger: Reiches Deutschland, indebted municipalities. In: Süddeutsche Zeitung . August 9, 2017, accessed April 25, 2020 .
  28. ↑ Andreas Niesmann: SPD leader Walter-Borjans insists on debt relief from municipalities. In: editorial network Germany . February 9, 2020, accessed April 25, 2020 .
  29. ↑ Spiegel Online of February 9, 2009 , Spiegel Online of February 11, 2009 , Manager Magazin of January 13, 2009 and Handelsblatt of February 13, 2009
  30. ↑ Press release from February 12, 2009
  31. ↑ FOCUS Online from February 7, 2009
  32. ↑ Press release of the DGG from March 5, 2009 ( Memento from March 17, 2009 in the Internet Archive )
  33. ↑ Gustav Horn , Achim Truger and Christian Proaño: Opinion on the draft of an accompanying law to the second federalism reform BT Drucksache 16/12400 and draft of a law amending the Basic Law BT Drucksache 16/12410. boeckler.de
  34. ↑ Achim Truger, Henner Will, IMK Working Paper January 2012: "Prone to design and pro-cyclical: The German debt brake in a detailed analysis"
  35. ↑ John Maynard Keynes: General Theory of Employment, Interest and Money , Duncker & Humblot, Berlin 1936/2006, p. 183
    “The stock of capital and the level of employment will consequently have to shrink until the community is so impoverished that the Total saving has become zero so that the positive saving of some individuals or groups is offset by the negative saving of others. In a society that conforms to our assumptions, the equilibrium must therefore adopt a position under     laissez-faire conditions in which employment is low enough and living conditions are sufficiently miserable to bring savings to zero. "
  36. ^ Bill Mitchell: Fiscal rules going mad ... ( online ).
  37. ↑ Thomas Fricke in the Financial Times Deutschland ( Memento from February 21, 2011 in the Internet Archive )
  38. ↑ http://www.bundestag.de/dokumente/textarchiv/2011/34944111_kw26_de_artikel115_gg/index.html
  39. ↑ https://web.archive.org/web/20121112070228/http://www.fr-online.de/wirtschaft/hessen-gewerkschaften-gegen-schuldenbremse,1472780,4635404.html
  40. ↑ http://www.die-linke.de/nc/die_linke/nachrichten/detail/artikel/schuldenbremse-ist-wachstumsbremse/
  41. ↑ Clemens Hetschko, Dominic Quint, Marius Thye: Warning, brake failure! (PDF) In: FAZ , November 23, 2012, p. 12.
  42. ↑ The debt brake: sustainable, stabilizing, flexible. In: Annual Report 2019. Retrieved April 25, 2020 . (PDF)
  43. ↑ The debt brake - how effective is it in a low interest rate environment? October 21, 2019, accessed April 25, 2020 .
  44. ↑ Niklas Záboji: Economists defend the debt brake. In: FAZ . October 21, 2019, accessed April 27, 2020 .
  45. ↑ Bert Losse: Hands off the debt brake! In: Wirtschaftswoche . February 17, 2020, accessed April 27, 2020 .
  46. ↑ Budget Committee: Experts argue about applications for the debt brake. March 3, 2020 .;