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Debt Brake

Picture: Fotolia

The so-called “debt brake” is a constitutional amendment requiring the Federal Government and the 16 German states or Länder to balance their budgets. From 2020, state governments will not be allowed to take out further loans. Since 2016, the Federal Government has been allowed to borrow a maximum of 0.35 percent of gross domestic product under normal economic conditions.

In 2009, the Federal Government under Chancellor Angela Merkel and Finance Minister Peer Steinbrück decided to curb debt by amending the Basic Law.
  • Michael Hüther ·
  • IW-Policy Paper No. 3 ·
  • 26 March 2019

10 years of debt brake - a concept with a future?

The introduction of the German debt brake 10 years ago was justified from a historical perspective. Compared to the early 1960s, the debt ratio had more than quadrupled from 20 to 80 percent despite consolidation efforts. In addition, due to government bonds yields well above the GDP growth rate, it was assumed that public borrowing would result in an intergenerational redistribution at the expense of future generations.

No further tampering
  • Stability and Growth Pact ·
  • IW News ·
  • 13 September 2016

No further tampering

Jean Claude Juncker might buckle again. Tomorrow, the President of the EU Commission will hold his annual State-of-the-Union speech. He could once again make room for more flexibility of the EU’s fiscal rules – and thereby meet ever louder demands of Southern European countries. However, such a move would further damage the EU’s image in other parts of the Union. The Commission should not yield.

EU must take gloves off
  • Financial Sanctions ·
  • IW News ·
  • 11 July 2016

EU must take gloves off

For the first time in the history of the Stability and Growth Pact, the EU could impose sanctions for excessive government deficits. Targeted by sanctions would be Spain and Portugal. And rightly so, because compared to France and Italy, the budget deficits of the Iberians are significantly more severe. This does not allow tinkering with the fiscal rules anymore.

Concept with Shortcomings
  • The new European Fiscal Board ·
  • IW News ·
  • 22 October 2015

Concept with Shortcomings

The European Commission has presented plans to solidify the European Monetary Union. As one of the central elements, an advisory European Fiscal Board will be established in November 2015. However, the concept suffers from serious shortcomings.

Orderly sovereign debt restructuring procedures for the euro area
  • Berthold Busch / Jürgen Matthes ·
  • IW-Policy Paper No. 23 ·
  • 30 July 2015

Orderly sovereign debt restructuring procedures for the euro area

The case of Greece has reveiled an institutional gap remains in the institutional framework of EMU: an orderly insolvency mechanism for sovereign states. After weighing the pros and cons of such a...

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Tobias Hentze

Dr. Tobias Hentze

Senior Economist for Financial Policy and Tax Policy

Tel+49 221 4981-748

Mailhentze@iwkoeln.de

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