Most of the time, brakes are good things. After all, how else are you going to stop your car or your bike? But in Europe, brakes can also bring down governments.
Since 2009, Germany has had what is known as a “debt brake”. Basically, it’s a rule in the constitution that says federal and state governments should spend only as much as taxes and other income sources bring in. If the federal government does borrow, it can do so only up to 0.35% of national income. States may not borrow at all.
That fits well with Germany’s conservative culture – some have called it “an obsession” – around spending. The average German has lower credit card debt – around US$2050 – than New Zealanders, Australians and Americans, and also saves more than most other nationalities. As one local bank put it, Germans “save too much and invest too little”.
That seems to be true of the government, too. And now, just as it has decided it needs to invest more, there’s that pesky debt brake again.
It had already caused serious budget headaches in late 2023. Now, the damn thing has brought the government down.
Since 2021, the coalition government has been made up of the Social Democrats, the Greens and the much smaller, neoliberal Free Democrats. The head of the latter, Christian Lindner, was Germany’s finance minister until November 6.
Recently, the rest of the government said it wanted to pause the debt brake. Germany never borrows, was their argument, and right now it really needs to.
But Lindner had his tiny, polished shoe planted firmly upon that brake. Instead of taking it off, he wanted the government to cut spending on social welfare and climate change prevention projects to find the extra cash it needed.
At least, that’s how Chancellor Olaf Scholz put it, shortly before he fired Lindner. At which stage it was goodbye coalition government and hello early general election, currently slated for February.
All this has brought back the brake debate again. Nobody can decide whether it’s a good thing or a bad thing. A late-2023 survey of 187 economics professors, by think-tank the IFO Institute, found half wanted to get rid of it and the other half to keep it.
Those who like the brake say it discourages fiscal irresponsibility. Those who don’t argue it’s a fiscal straitjacket.
Now that it has become one of the primary factors behind the collapse of the German government, opinions seem to be shifting. The debt brake “is beginning to look unsustainable in a world of mushrooming demands on the public purse”, Politico wrote. It could even be considered “a threat to democracy”, two political scientists argued rather presciently in an op-ed for the Berlin Social Science Centre in March. Even former German leader Angela Merkel said in a recent interview she thinks it should be reformed – and it was her idea in the first place.
Anyway, it’s not as if German politicians are maxing out the company credit card to buy the latest Gucci handbag. Germany is on the verge of a recession. Faced with low growth rates, years of under-investment in infrastructure, multiple international crises, Ukrainian refugees and a rising far right, the government needs to spend bigger to fix even a little of this.
The debt brake may well be out of date now. Just like a fair few other things Germany has clung to for no good reason, – including fax machines, massive auto industry subsidies and unconditional support for the Israeli government – this is one brake that needs to be urgently and thoroughly debated.
Cathrin Schaer is a freelance journalist living in Berlin.
