Election throws Germany’s legendary ‘debt brake’ into question

The fiscal straitjacket has already helped to bring down Chancellor Olaf Scholz’s ruling coalition, making an election likely on Feb. 23.

The coalition collapsed earlier this month largely because Finance Minister Christian Lindner’s proposals to keep the deficit within limits all proved unacceptable to his coalition partners, the Social Democratic Party (SPD) and the Greens. After Scholz fired Lindner, his fiscally conservative Free Democratic Party (FDP)  left the government, paving the way for an election in February, seven months earlier than scheduled.

Recognition of the need for a major overhaul is growing. This month, the government’s Council of Economic Advisers floated a proposal to adopt rules allowing for more investment in a bid to ease tensions. Meanwhile, the Deutsche Bundesbank — usually a bastion of fiscal conservatism — has been arguing for months that a reform allowing “moderately higher borrowing headroom” would be justifiable, as long as the overall public debt ratio remains low.

But getting rid of the Schuldenbremse before the elections is not so easy: any change would require a two-thirds majority in both the upper and lower houses of parliament. The far-right Alternative für Deutschland (AfD) opposes any reform, as does Lindner’s FDP.

Tactical reasons, meanwhile, suggest the center-right Christian Democrats are unlikely to support anything that would only prolong their time in opposition, and would in any case want to draft any new version from a position of power.

But there is one argument in moving quickly: opinion polls suggest that in the new Bundestag, the AfD and hard-left Sahra Wagenknecht Alliance could win enough seats to block any proposal, giving them an unacceptable degree of leverage over the country’s political mainstream. That creates an incentive to do a deal now, rather than leave it a hostage to fortune.

The new Green Party leader Felix Banaszak said at the weekend he hoped CDU leaders at the state level would pressure their Berlin colleagues for an immediate change to the amendment “because they see that this reform is necessary.”