[News Terms] 'National Debt Brake' Facing Controversy Over Its Survival in Germany

The 'Debt brake' is a fiscal policy that sets an appropriate national debt limit and restricts debt issuance exceeding this limit.

Germany codified in its constitution in 2009 that the fiscal deficit for a year should not exceed 3% of the Gross Domestic Product (GDP), and the national debt limit should be capped at 0.35% of GDP. However, in special crisis situations such as natural disasters, the federal parliament can resolve to exempt the application. Sweden mandates a fiscal surplus of at least 1% of GDP, and Switzerland has legislated that if a fiscal deficit occurs, it must be offset within the following six years.

In May of last year, Olaf Scholz, the German Chancellor, held a press conference at the Presidential Office building in Yongsan, Seoul.
[Photo by Yonhap News]

South Korea also submitted the 'Fiscal Soundness Act' to the National Assembly in 2016, limiting the national debt ratio to within 45% of GDP and the annual fiscal deficit to within 3%. At that time, lawmakers from the Democratic Party of Korea proposed the 'Debt Limitation Act' to restrict the annual increase in national debt to within 0.35% of GDP. Later, in 2020 during the Moon Jae-in administration, the Ministry of Economy and Finance announced plans to introduce fiscal rules. However, all these efforts failed to pass the National Assembly and were shelved.

The UK's Financial Times (FT) reported on the 1st (local time), citing an article contributed by German scholars to the influential daily Frankfurter Allgemeine Zeitung (FAZ), that there is a debate in Germany about whether to maintain or abolish the debt brake.

FT quoted the article stating, "This (debt brake) is the 'German version of Brexit.' It not only causes enormous damage to neighboring countries but also internally amounts to a 'national self-harm' that strangles future investments."

The German coalition government led by Chancellor Olaf Scholz decided in 2021 not to apply the debt brake considering the impact of the COVID-19 crisis. Subsequently, the coalition government drafted this year's and next year's budgets based on reallocating 60 billion euros, which was not used for COVID-19 crisis response, to the Climate Transformation Fund (KTF) to finance new climate change projects.

However, in November last year, the German Federal Constitutional Court ruled that the budget was an unconstitutional circumvention of the debt brake. This caused a 'budget crisis' in Germany, and the debate over the effectiveness of the debt brake intensified.

FT provided a detailed report on the divided situation in Germany regarding the maintenance or abolition of the debt brake. According to a recent public opinion poll by the election research group 'Wahlen,' 61% of Germans want to keep the debt regulations as they are, while only 35% support easing the brake.

Opinions among economists and experts are split. A recent joint survey by the Ifo Institute for Economic Research and FAZ targeting economists showed that 48% favor maintaining the current system, while 44% want improvements. Considering the approximately 6% who want the system completely abolished, expert opinion on the debt brake is divided roughly 48 (support) to 50 (oppose).

This content was produced with the assistance of AI translation services.