The Bundesbank has once again put on the table one of Germany’s main problems: the straitjacket that prevents the Government from going into debt to reactivate the economy in times of crisis. The ‘debt brake’ has brought down Olaf Scholz’s Executive, and the fact that the central bank has come out to publicly provide a justification for its elimination may pave an agreement between conservatives (CDU) and socialists (SPD) in the face of the next elections.
In 2009, the grand coalition government between the CDU and the SPD led by Angela Merkel approved a constitutional amendment that limited structural deficits to 0.35% of GDP. This amendment was intended avoid debt crises like those that then shook Greece or Italyensuring that a Government could not squander public money uncontrollably in times of economic growth. The problem, as some economists already warned at the time, is that it prevented the opposite: that a Government could use specific investments with public money to reactivate the economy in times of ‘lean times’.
This brake has led to the breakdown of the complex ‘traffic light’ coalition between SPD, Greens and liberals (FDP), given the impossibility of increasing investments in infrastructure, which are very old, and thus boosting the economy of a country that has been stuck in an intermittent recession that just won’t go away.
Joachim Nagel, president of the Bundesbank, has explained that reforming this constitutional amendment would allow long-term national investment plans to be carried out with “very intelligent approaches”such as reinforcing defense spending or modernizing infrastructure. In his opinion, the country has the capacity to incur “slightly larger deficits” without “jeopardizing financial stability” of the State. And he warns that Germany faces a “more complicated” situation than the recession it experienced at the beginning of the century, even though unemployment is now much lower than then, since at that time “there was no geopolitical fragmentation and world trade was booming”.
The approval of the Bundesbank may be the impetus the CDU needs to agree to reform this article before the elections. Scholz wants to take advantage of the remaining weeks before the election call to eliminate this obstacletaking advantage of the fact that the Executive (SPD and Greens), together with the CDU, would add the absolute two-thirds majority required for constitutional amendments.
The conservative leader, Friedrich Merz, has indicated so far that he would prefer to keep the brake removal card to himself to negotiate a grand coalition government with the SPD after the elections, but polls point to the risk that the extremes -Alliance for Germany, on the right, and the Sahra Wagenknecht Coalition, on the left- add up to more than two thirds and could block a constitutional reform in the next legislature. Nagel’s words today may be the excuse Merz needs to justify an early loan.
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