Debt brake (Germany)

Due to a debt-to-GDP ratio above the 60% threshold fixed in the Maastricht Treaty, caused primarily by the heavy payments to reconstruct former communist Eastern Germany after reunification, the German government decided to introduce a balanced budget amendment called "debt brake" (Schuldenbremse);[1] in 2009 it was approved with a two-thirds majority both by the Bundestag and the Bundesrat. This decision will lead to public budgets without structural deficits (Länder) or a very limited deficit (0.35% of the GDP for the federal state). For the introduction of the Schuldenbremse or debt brake a constitutional change was necessary: The debt brake is now fixed in Article 109 paragraph 3 of the Basic Law, Germany's constitutional law. Meanwhile, several Länder also have adopted the debt brake in their state constitutions. With the debt brake, the structural federal deficit, and not the cyclical deficit, must not exceed 0.35% of the GDP starting 2016. For the Länder, structural deficits will be completely forbidden starting 2020. The only exceptions are natural disasters or strong recessions.

Germany has achieved budget surpluses for the complete country starting from 2012 and was able to reduce its debt-to-GDP ratio from 82.5% to 74.8%. In 2014, Germany achieved a budget surplus of 18.0 billion euros or 0.6% of GDP.[2] This means that Germany's debt is not growing any more, but actually shrinking.

See also

References

  1. ↑ The Ecomonist: Germany’s debt brake - Tie your hands, please
  2. ↑ Newsweek: Germany Posts €18bn Budget Surplus as Economy Grows
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