Financial advisors linked to Klingbeil advocate against lessening the fiscal restraint mechanism
The ongoing debate on modernising Germany's fiscal rules has taken a new turn, with the scientific advisory board at the Ministry of Finance expressing concerns about further easing of the debt brake.
The advisory board, which includes members such as Ifo President Clemens Fuest, former economic expert Volker Wieland, and finance professor Thiess Büttner, has been vocal about the need for careful fiscal management. According to Veronika Grimm from the Council, the government has borrowing capacity, but no liquidity, highlighting tensions between calls for fiscal consolidation and simultaneous plans for large investments in defence and infrastructure.
The concerns from the advisory board revolve around potential breaches of EU guidelines on debt. If Germany were to breach these guidelines, it could accumulate disproportionately high debt, posing a risk to the stability of the Euro. This warning comes after billions in loans were recently approved, and the high debt could potentially jeopardize Germany's long-term debt sustainability.
The Union party, on the other hand, wants to maintain the debt brake rules as much as possible. This stance is in line with the current proposals for reforming Germany's debt brake, which focus on easing borrowing limits constitutionally, creating funds for infrastructure and climate investments, and considering spending cuts.
The government faces a fiscal shortfall of about €172 billion by 2029, driven by tax breaks, pension increases, and rising debt-servicing costs. Larger-scale reforms and spending cuts, such as in unemployment benefits and subsidies, are under consideration, with formal proposals expected in 2026. The coalition has secured preliminary parliamentary support for constitutional changes needed to increase borrowing capacity, but debates continue over budget priorities and spending cuts.
The advisory board suggests using the planned discussion on reforming the debt brake as an opportunity to improve its effectiveness. Limiting new debt is now considered more crucial than ever, according to the advisory board. This stance reflects the ongoing debates on the best path to modernize Germany’s fiscal rules while addressing economic and structural challenges.
In summary, the scientific advisory board at Germany's Ministry of Finance has warned against further easing of the debt brake, citing potential breaches of EU guidelines on debt and the need for careful fiscal management to maintain long-term debt sustainability. The ongoing debates on the best path to modernize Germany’s fiscal rules while addressing economic and structural challenges continue.
The scientific advisory board at Germany's Ministry of Finance has expressed concerns about the need for careful fiscal management, stressing the importance of limiting new debt to maintain long-term debt sustainability. This cautionary stance is closely tied to economic and social policy decisions, particularly in regard to finance and business, as potential breaches of EU guidelines on debt could accumulate disproportionately high debt, posing a risk to the stability of the Euro.
