In a historic move, the Bundestag, Germany’s lower house of parliament, is set to vote on a bill that would significantly relax the country’s debt brake, enables the government to take on unprecedented levels of debt. The proposal, introduced by the governing coalition composed of the CDU/CSU and SPD, will allow the federal government and states to borrow to invest in military defense, civil infrastructure, and climate protection measures.
The groundbreaking bill, which aims to circumvent Germany’s long-standing fiscal rules, would enable Germany to exceed the current debt limit, which is set at 0.35% of the country’s gross domestic product (GDP). This loosening of the debt brake will potentially lead to new borrowing to the tune of approximately €1 trillion over the coming years.
Germany’s strict debt rules, enshrined in the country’s Basic Law, have traditionally prevented the government from running significant deficits. The upcoming vote marks a significant shift in the country’s approach to public borrowing, with potentially far-reaching financial implications. If passed, it will not only facilitate increased spending on defense and infrastructure but also signify a substantial departure from the country’s historically conservative fiscal policies.
This Decision Faces Criticism:
Trouble may lie ahead, however. The initiative faces opposition from the far-right AfD and the Left party, who have different reasons for their opposition. These parties could block the proposal unless the governing parties secure support in the current Bundestag, which is still in session until March 25th.
Economic Concerns:
Economists expressed concern about the financial implications of such a large increase in Germany’s debt. They fear that incurring almost €1 trillion in new debt could destabilize the country’s financial markets and lead to a hike in interest rates, increasing the long-term burden on taxpayers. Additionally, there are concerns over the impact on the Eurozone stability should interest rates for German government bonds rise.
Source: https://www.dw.com/en/%E2%82%AC1-trillion-impact-what-easing-debt-brake-means-for-germany/a-71949959?maca=en-rss-en-all-1573-rdf
