Germany is going through a difficult situation in which its industry has ceased to be competitive and it seems that the only solution to be able to stimulate the economy is to modify the known as Schuldenbremse or brake on debt. For this, it is necessary to make a constitutional reform and a majority of two thirds of the two cameras -bundestag (lower house) and Bundesrat (upper house) -is required.
According to the latest data of the surveys, a parliamentary agreement of CDU (Democristians), SPD (Social Democrats), Los Verdes, FDP (Liberals) and Die Linke (Neocommunists) would obtain the sufficient majority of 422 seats from The 630 that will compose the Bundestag To start this reform. Thus they could maintain the sanitary cord that the majority parties pledged to safeguard against the orthrachy of the AFD.
This constitutional mechanism established in 2009, when Angela Merkel was chancellor and Europe began to plunge into a deep financial crisis, sets the country’s debt roof to 60% of GDP. On the other hand, there is the Schwarze Nullthat is, the zero deficit policy associated with the Ministry of Finance of Wolfgang Schäuble, and that stipulates that the structural liabilities of the country should not exceed 0.35% of the total of its economy.
These debt and deficit brakes, and their possible reform, is a hot topic in the electoral campaign for federal elections that will take place on February 23. The next government will have to try to gather a two -thirds majority in the Bundestag (lower house) to be able to modify the Constitution and that this debt roof is extended. With this they can introduce stimuli in the demonstrated German economy, especially in the industry, since the services sector is that the largest economy in Europe is currently maintaining.
The data are tozzudos, both in 2023 and in 2024, Germany closed in recession, with a fall of the 0.3% and 0.2% GDP respectively. For this year, it is not that many signs of recovery are seen, since the outgoing government expects the economy to expand 0.3%, while the more than 8,000 experts around the world consulted by the IFO Economic Institute, with Headquarters in Munich, give 0.4%as value. The Federal Statistics Office, Destatis and the Bundesbank (Central Bank) foresee that it will be 0.2%. All this without the tariff protectionism of the president of the USA, Donald Trump. It must be remembered that the German economy is sustained thanks to its exports and an increase in tariffs could not hurt.
As the British economic magazine The Economist wrote at the time: “Germany has many problems, but debts are not one of them.”
The Germans have always had an obsession with having healthy accounts, but something is changing when Bundesbank himself, Joachim Nagel, suggested at the beginning of the year in the Davos forum that had to make a brake reform of the debt “oriented to stability “that allows greater public investment if the general level of debt reaches a limit of less than 60% of GDP. The leader reiterated that the reform must go “beyond some small changes.”
A DECLIVE POWER
The economic decline of the European locomotive does not have a specific start. There are several events throughout the previous legislature, made up of the traffic light (social democrats, green) and led by the outgoing chancellor and candidate of the Social Democratic Party of Germany (SPD), Olaf Shcolz, which mark the chronology of what is the debacle of the EU giant.
In 2020, during the Covid-19 pandemic, Germany’s GDP closed with a 3.8% negative growth. A priori, it was expected and it was not the worst behavior of the great economies of Europe, since the Spanish economy contracted 10.9% due to its strong dependence on services, compared to the German that is based on the industry .
The country soon left the pandemic crisis and immediately the GDP began to recover until closing in positive figures in 2021 (3.2%). Although the economy already dragged the fall in the global demand of 2019, it managed to stay. But in 2022, the outbreak of the Ukraine War was a reverse, since Arussia sanctions affected their cheap gas supply, which led to the increase in production costs.
To this we must add other structural problems that indicate from the private sector, such as the increase in labor costs and bureaucracy. The consequence of all this is that in Germany, especially due to the loss of that cheap gas, there was an inflationary explosion that In October 2022 it reached 10.4%. A trend that was seen throughout Europe, and the world, and that forced the EUCA to raise interest rates.
This was another stone in the ballast of the German economy, since companies cost more financing to invest in improvements to make it more competitive.
Unbroken inflation and the rise in interest rates caused a contraction of consumption and domestic demand, so the economy continued to stop.
But the strict debt control mechanism has a section which allows suppress it in emergency situations. During the pandemic, between 2020 and 2022, it was totally suspended to finance economic support measures.
According to data from the Fiscal Monetary Fund data (IMF), Germany’s debt reached almost 70% at that time until in 2022 it was corrected to 65%, when the mechanism was activated again. The same happened with the deficit. In times of pandemic, the one discovered in the German accounts reached the unthinkable figure of 4.4%.
Even so, in 2023 another stick in the wheel reached the Teutone economy. A judgment of the Constitutional Court gave a turn to everything. The High Court declared unconstitutional, based on the Schuldenbbremse, that the 60,000 million euros that were initially allocated for the pandemic were dealing with a climate fund by the government of Foreign Minister Olaf Scholz. This caused the emergency and strict control of public finances to be annulled to solve the budgetary crisis.
Different visions
Today, there are diverse opinions on how to face the problem of “sustained weakness” of the German economy. This was described by the Bundesbank representative in Spain, Fabian Huttner, during his speech at the opening of the II Bundesbank forum.
Just a year ago, the president of the IFO, Clemens Fuest, and Niklas Potrafke, director of the IFO Center for Public Finance, asked that this mechanism be maintained to the brake “without reforms”. They reiterate that this measure “forces politicians to establish priorities.” At the same time, “this offers enough margin to borrow, which can make sense from the economic point of view,” they said.
Both experts point out that there are “empirical studies” that show that effective debt rules “bring significant economic benefits.”
Instead, former BCEY councilor of Economics, José Manuel González-Páramo, recently assured Eleonomsita.es that the reform of the Schuldenbbremse is more than necessary: ”Germany has to deal with expenses that are necessary by virtue of fragmentation, the digital problem or the problem of energy. How are you going to undertake investments with the debt rule that Is there right now? “Said the expert.
Also, in terms of politics, he reiterated that a possible Great coalition of CDU democristians with SPD social democrats“or even with the green,” he said. But he highlighted something important, and that is that the rise of AFD as a second force in the polls can truncate the possibilities of reforming the Constitution.
As for the parties, traditionally, the CDU has been more conservative and is committed to continuing with financial stability. On the other hand, the party candidate, Friedrich Merz, believes that it is necessary to make the mechanism to fulfill the increase in defense expenditure and activate stimuli to the economy. Of course, as long as it saves in other games.
For their part, the social democrats headed by Olaf Scholz, propose to make a complete reform and create the Germany Fund, which foster both public and private investments that suggest more flexible these restrictions on indebtedness. In this sense, Schozl wants to issue more debt to solve the structural problems that Germany are.
According to the last polls, the winners of the elections would be the conservatives of CDU with their candidate Friedrich Merz at the head. The most recent surveys (February 4) give democristians 30% of the votes, which would give it possibilities to form a government. The question now is who this executive could form and how the debt brake in the Constitution will be reform.
The surveys suggest that AFD’s outraged right, with Alice Weidel as a candidate, would rise with second place in votes, obtaining around 21% of the scrutiny. Very behind would be the social democrats of SPD, who would go from having 26% of the votes of the 2021 elections to a lean 13.3%.
The green would remain, with 13.3% and the FDP liberals would fall to 5% from 11.5% of four years ago. Die Linke’s left would remain with 4%.
In view of the results of the polls, everything indicates that Germany will repeat the great coalition to keep the sanitary cord with the ultra -right.
^But, although they can form government, the great coalition will need more support to be able to make the reform of the Constitution. Specifically, a two -thirds majority of the cameras. That is, at least 420 of the 630 seats.
Taking into account the data of the German polls and electoral law with respect to the percentage of votes, the CDU would obtain 189 seats; AFD, 138; SPD, 98; The Greens, 79; FDP, 32 and Die Linke, 24 seats.
A CDU coalition, Spdy Los Verdes, which is the most viable option according to the current political scene of Germany, would not add the necessary 420 seats, since they would stay in 366.
In the event that Democristians, Social Democrats and Greens managed to attract the liberals, a more viable option, they would stay close, 22 seats, to reach the majority sufficient to change the Constitution. Therefore, it is necessary that the majority political forces turn their gaze to the left to be able to attract the possible deputies of Die Linke. The 24 votes that this formation can contribute would be key to open the debt roof. The problem is that the huge ideological differences between formations make this great alliance practically impossible.
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