According to the ruling of the Constitutional Court: Top economist Hüther wants a new debt brake

With its decision on the Corona loans, the Federal Constitutional Court is likely to cause headaches in Berlin for a long time. But it has to be said so clearly: the traffic light coalition brought this soup on itself. The verdict is proof of what a fatal error the mixture of strict debt limits and budgetary sleight of hand was.

The criticism of the traffic light’s budget policy is as old as the reallocation itself – just like the suggestions to do it differently. It must now be clear at the latest: politicians can no longer use gimmicks to avoid the task of adapting the debt brake to today’s requirements. The debt brake is out of date, the transformation to climate neutrality requires other solutions – for reasons of efficiency and intergenerational fairness.

There would be leeway from an economic perspective, because IW calculations show that even if the debt brake were raised from its current level of 0.35 percent to 1.5 percent (structural debt in relation to GDP), the debt ratio would fall significantly year after year . This would allow additional debt of around 50 billion euros in the coming year alone without endangering the sustainability of public finances.

A reform would include an investment clause that makes exceptions for certain expenses. It would also be worth considering taking the interest rate into account when taking out net borrowing, for example by using the interest-tax ratio as a leading indicator: If interest expenses increase as a share of tax revenue, new net debt must be reduced. When interest expenses are low, the credit potential increases. In principle, it remains true that the Finance Minister is putting a stop to social policy desires – today has not changed that.

Against this background, the ruling offers an opportunity and should trigger the reform of the fiscal rules that is important for the economy. For far too long, the federal government has failed to ensure transparent conditions for special funds and emergency loans and their repayment.

However, in terms of growth policy, the ruling comes at an inopportune time. The Council of Experts for the assessment of overall economic development recently estimated the growth potential of our economy at just 0.4 percent in its annual report. This is due to demographic aging, and much of it is related to the investment backlog in the country. We are facing decades of restructuring our economy. If politicians have to haggle over every euro for rails, roads or energy networks right now, the transformation can only fail. Because one generation cannot finance this historic task with its tax revenue.

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