Since we began to think about the creation of a European central bank, the premise that the institution should be created in the image and likeness of the German Bundesbank, a great value for financial stability, remained unchanged. Over time, it became clear that the ECB could do little for stability if euro governments did not adhere to fiscal discipline. In 2009, in the early stages of the financial crisis, Angela Merkel had a brake on the debt that since then prevents the governments of Berlin from increasing their debt by more than 0.35% of annual GDP. With this measure he aspired to put an end to any possibility that what was happening at that time in Greece, Italy and Spain would one day happen in Germany. Related News standard Yes The ECB keeps Europe in uncertainty about the future of interest rates after today’s decision Rosalía Sánchez | Berlin Correspondent The institution is not expected to give a clear indication of how to proceed going forward; It will depend on the evolution of inflation and the situation in Germany. The then German chancellor later continued to evangelize the faith of fiscal discipline and convinced Zapatero in 2011 with a single phone call to also introduce a debt brake into the Spanish Constitution. in what remains to this day the great constitutional reform since 1978. The Spanish public accounts were Germanized with this measure, which Merkel had first applied at home to set an example and with the aim of then extend it to the rest of the EU, so that the peripherals would stop being so manipulative and the cancer of their risk premiums would not extend to the German bond. Several crises have happened since then and now the tables have turned. The German economy is succumbing to technological and industrial competition from China and the energy transition has taken away profits and investments. To this we must add that decades of austerity severely weigh on infrastructure and services. Roads in poor condition, schools in ruins, obvious deficits in digitalization: the German State no longer adequately fulfills many of its basic tasks due to lack of resources and the debt brake is beginning to be questioned. The shortcomings of the German army have become evident after the invasion of Ukraine by Russia and the collapse of the Carola Bridge in Dresden has been the last straw. 73% of Germans are already in favor of eliminating it, according to a survey by the Bertelsmann Foundation in February, and the debt brake has even brought down a government. Scholz pressed as much as he could to get rid of the debt brake, but the stubbornness of the Minister of Finance, the liberal Christian Lindner, opposed to extending an exception in its application, as was done during the pandemic, has led to the early calling of elections. And none of the main candidates defend it at all costs. Even the leader of the conservative CDU, Friedrich Merz, pulls from Sean Connery’s James Bond to respond on the matter: “never say never again.” He is in favor of fiscal discipline, as his voters expect, but recognizes that “we do not know what challenges we will face tomorrow and the day after tomorrow.” But the one who has definitively broken down the taboo has been the president of the Bundesbank, who has ruled against it. An old saying states that many Germans do not believe in God, but all Germans believe in the Bundesbank. And its president, Joachim Nagel, has just declared that he is in favor of reforming the debt brake, given the persistent economic stagnation and the poor prospects for the country. Greater fiscal room for maneuver, for example for greater defense spending and infrastructure modernization, would be a “very smart approach,” he commented in an interview with the “Financial Times.” He could consider distinguishing between public consumption spending and investments “in order to create more room for structural investments”, especially in an economic landscape like the current one, which he describes as “more complicated than at the beginning of the 21st century.” At that time, unemployment in Germany was much higher, but “there was no geopolitical fragmentation and world trade grew strongly.” There is the threat of “another year of weak growth” in 2025, he advances, and growth could be even weaker if US President-elect Donald Trump introduces blanket tariffs to the extent he has announced. “If even larger tariff increases are added to current forecasts, the overall economy could remain stagnant for even longer,” leaving its mark on the labor market. The OECD confirms that Germany has had weak investment activity since the turn of the millennium and denounces an “accumulation of pending investments in education and transport, as well as in the area of digital infrastructure.” Share capital has decreased significantly since 2003, especially at the municipal level. Germany actually gave up the debt brake years ago. After a long transition period, the rule did not come into full force until 2020, but just a few months later it was suspended again due to the pandemic emergency. Later, Russia’s attack on Ukraine and the interruption of energy supplies were added as additional emergencies, because otherwise it was impossible to balance the overall budgets. The federal and regional governments obtained large additional loans during these crisis years, which helped overcome special situations, emergency loans that the federal government has to start repaying in 2028. And there is no where from. Furthermore, life goes on and we must continue issuing debt. In 2025 alone, Germany will have to issue more than €40 billion of additional new debt and there are loans from the special fund for the Bundeswehr which, contrary to what its name suggests, does not consist of reserves, but rather a credit authorization. autumn 2023, the Scientific Advisory Council of the Federal Ministry of Economic Affairs recommended adding a golden rule to the debt brake: net public investments financed by debt would not be counted against the maximum net debt of the debt brake. At the beginning of this year, following the ruling of the Constitutional Court overturning the general budgets, the German Council of Economic Experts proposed a new regulation with three elements: a transition phase after an emergency, a higher structural deficit limit with a low level of debt, and a cyclical component that is less susceptible to review. The extreme right of the AfD, however, clings to the debt brake and renouncing it will have the effect of increasing its popularity, which is what other parties fear most, even ahead of the fear of bankruptcy.
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