Debt Brake

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.

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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 Nr. 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.

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.

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.

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.

Berthold Busch / Jürgen Matthes ·
IW-Policy Paper Nr. 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...

Greece ·
IW News ·
13 July 2015

Five lost months: three gained years

The difficult talks on a further bail-out package for Greece seem to have come to an agreement: the impending Grexit finally became an agreekment. At least for the three coming years, Greece will stay in the Eurozone.

Greece ·
IW News ·
10 July 2015

Finally a compromise?

Yesterday night the Greek reform proposals reached the creditors. Surprisingly, the new reform agenda goes beyond the propositions starkly rejected in a public referendum last week. In return, Tsipras demands a three year financial assistance program. If an agreement is struck Greece must make good use of the three years to actually implement structural changes.

Michael Hüther at Deutsche Welle ·
Interview ·
25 June 2015

Greeks have to face realities

In an interview with Germany's international broadcaster Deutsche Welle (German Wave) Michael Hüther, head of the Cologne Institute for Economic Research, supports German Finance Minister Schäuble's tough stance on Greece: there is no reason to change the German position, he says.

IW Director Michael Hüther in "die Welt" ·
Contribution ·
19 June 2015

Rapid assistance for Athens

Without a doubt, Greece has made headway on a rocky road so far, implementing cuts on government spending (including the military) as well as on wages and pensions, and liberalising its labour market. In cyclically adjusted terms, budget positions between 2010 and 2014 indicated a significant upswing from -9.4 per cent to +1 percent, with the OECD referring to Greece as one of the most reform-dynamic states. Nevertheless, it remains clear that these measures do not suffice, and that significant problems persist.

Jürgen Matthes ·
IW-Policy Paper Nr. 11 ·
3 June 2015

The euro rescue fund @5

Taking stock

Dr. Tobias Hentze

Senior Economist for Financial Policy and Tax Policy

Tel+49 221 4981-748

Mailhentze@iwkoeln.de

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