BERLIN – Chancellor Angela Merkel’s chief of staff has floated the idea of suspending German rules to prevent the government from running on new debt for several years as Europe’s largest economy digests the impact of the coronavirus pandemic.
In an article for Tuesday’s issue of the Handelsblatt business daily, Helge Braun advocates stabilizing employee social welfare contributions through the end of 2023 and undertaking tax-free increases.
He wrote that such a “strategic decision for economic recovery” would have significant consequences on the budget – “in concrete terms, the ‘debt brake’ cannot be sustained in the coming years even with strong spending discipline.”
The so-called “debt braking”, introduced a decade ago, allows for new loans that amount to only 0.35% of annual gross domestic product, although they can be deferred to deal with natural disasters or other emergencies that are not under state control.
After six years in the dark, Germany will be forced to add new debt in 2020 to help cover the costs of a large support package needed by the coronavirus pandemic and an expected drop in tax revenue.
“Braking debt” was deferred to allow new loans of up to 217.8 billion euros ($ 265 billion). In the end, Germany borrowed only 130.5 billion euros; economy suffered less badly than expected, decreased by 5% – still a better result than expected. That rule was also suspended for 2021.
Braun argues that, instead of continuing to claim year-over-year exemptions to the rule, the constitution should be adjusted to define a “reliable diminishing corridor” of new loans over the coming years and “clear dates for returning debt compliance.”
Braun’s intervention is extraordinary given that debt rule has long been the pride of Merkel’s center-right Christian Democratic Union and this is an election year. Germany will elect a new parliament on September 26, a vote that will determine who will replace Merkel as chancellor after 16 years.
The center-right parliamentary group budget spokesman, Eckhardt Rehberg, rejected the idea and described the proposal as “personal opinion” Braun. He said that “solid government finances were non-negotiable” for the group.
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