Why Germans shouldn't love their debt brake
#221
My Dear Friend of Democracy,
It's been a near-religious battle that's been waged for many years around the debt brake (Schuldenbremse) in Germany.1
Each side has its creed.
One side is sceptical of the state per se. They don't trust it to handle the money entrusted to it properly, especially when it's the money of future taxpayers.
On the other side are those who see the state as the shaper of the future. They see a pure night-watchman state, i.e., a state whose core task is the responsibility of upholding the law only, as the path to the downfall of democracy. For this group, debt is an investment for a glorious future.
Both sides have good arguments.
Who is right, or rather, in which direction the pendulum should swing, has to be decided in light of the reality of the present.
And herein lies the problem of beliefs. They obscure our view of reality, of what is proper and necessary TODAY.
People tend to deny reality because otherwise, they would have to abandon their beliefs.
This phenomenon isn't exclusive to politics and economics. It's human nature.
You may have heard that in Germany, a coalition of parties has agreed to pass a fundamental reform tomorrow that will allow more money to be spent on defence as well as on infrastructure renewal.2
Many economists in Germany think his is a good thing.
But not all.
Seven economists published a call in the weekly paper ZEIT (only in German) against easing the debt brake and against the special fund for better infrastructure. The text is mainly about criticizing other proposals. Where it offers alternatives and makes suggestions, only one of them takes the seriousness of the situation into account, still only halfheartedly.
The other suggestions may all be correct in principle, but they only help (if implemented) in the medium and long term. They are about structural reforms. That will bring more tax revenue into the state coffers in the somewhat distant future but will not buy Patriot systems today (delivery will take a while because the manufacturer's order books are well-filled). However, these systems are needed to protect Germany's major cities in case of an attack by Putin. Plus, such structural reforms will not renew infrastructure from today on. And, over and beyond, they cannot change indicators quickly about the economy and mood in Germany pointing upwards again – and those of the far-right Alternative for Germany (AfD) pointing downwards.
The only proposal in the economist's text that addresses the relevant issue remains half-hearted. The seven economists can imagine debt for defence, but only temporarily. However, nothing dictators like better than reliable planning about the military capabilities of the country they potentially intend to attack.
As said, there are good reasons to limit new government debt.
The most important is that in times like these, a country with low national debt has the potential to take on significant amounts of debt.
To be okay with this requires an insight into reality. About how serious the times are. Those who cling to dogma will be denied this insight.
See you in Democracy,
Johannes Eber
The debt brake has been the hallmark of Berlin's fiscal policy since it was introduced by former Chancellor Angela Merkel in 2009 and limited new borrowing to 0.35 per cent of GDP.
The deal will drastically overhaul the country's debt rules to allow a boom in defence and security spending as well as 500 billion euros in infrastructure investment in the next 12 years.
I’m proud of Germany for its national humility (which is not a national guilt or an unhealthy focus on the past). Germany is the only country in history to nationalize shame in a way that also makes clear that Germans today need not hang their heads. They only need to remember never again. No country has ever threaded the humanity needle better.
America, my country? We refuse to offer truth and reconciliation to descendants of slaves or to descendants of the people who lived in America before we decided it was manifest destiny that we take it over. I’ll never understand why we refuse a one-time reckoning.
When I read that Germany was going to bypass its debt ceiling to re-militarize and support Ukraine, I had a brief moment of chills, given the current arc of the German revanchist party. I got over it. Merz is on the right track & Germans are ready to lead again.
When the US reaches our fascist end game, perhaps Germany will be there to show us how to rebuild. I fear no one will be there, but I like the symmetry of German help.
I’m pretty sure I’ll be long gone. Better to leave too early than to risk it.