The debt brake – a German fetish?

France and Germany look at debt very differently. It starts with the language, explained Bruno Le Maire in an Arte documentary. In it, the French finance and economics minister said that the French term for debt (“la dette”) refers solely to financial debt. In Germany, on the other hand, the term has another level, that of moral misconduct. According to Le Maire, the moral charge of financial guilt runs very deep in Germany. In France, however, it does not exist.

So is debt in Germany a semantic problem? Possibly, says Austrian political scientist Andreas Eisl, who works at the Jacques Delors Institute in Paris. Eisl’s research focuses on European budget policy. In Germany, when it comes to debt, the state is often compared to the Swabian housewife who has to make do with the money that is available to her. Not a good comparison, says Eisl, since a state basically exists forever.

In France, on the other hand, they say that a citizen also borrows money if he wants to build a house. Nevertheless, it is of course difficult for France to “teach Germany lessons when you look at France’s debt level,” said Eisl.

There is no fear of debt in Europe

Germany is not the only country with a debt brake in Europe. Nevertheless, the German budget rules are among the strictest and limit the scope for maneuver the most.

The Austrian cannot understand fears like those of CDU leader Friedrich Merz, according to which Germany must stick to strict budget discipline, otherwise the dams could break in the rest of the European Union. Germany’s total debt is almost 65 percent, making it the lowest among the G7 countries. Most EU states currently have another concern than runaway national debt: “Namely that Germany will no longer be a growth engine in Europe,” said Eisl. If Germany were to make savings in an economically difficult situation in which the economy is not growing, it could even endanger the European Union’s climate goals.

USA launches major investment packages

A look across the Atlantic: The US national debt is more than 33 trillion dollars, more than 120 percent of gross domestic product, much more than in Germany. Nevertheless, President Joe Biden has passed massive investment packages in recent years that are primarily intended to support the economy on the path to climate neutrality: the Inflation Reduction Act with a volume of around $370 billion; or the $40 billion-plus Chips Act. But for economist Kimberly Clausing, these packages are more a reflection of weakness than strength.

Clausing is chair of tax policy at the University of California, Los Angeles. She believes that the European Union has been able to set a better course with CO₂ certificate trading than the US government. Because a price for CO₂ cannot be agreed with the Republicans, the Biden administration is trying a different approach: “By subsidizing energy transition, innovation and adaptation to the climate crisis, the government hopes to move closer to the requirements of the Paris Climate Agreement.” , explains Clausing.

Should you invest in developing countries?

Especially with the Inflation Reduction Act, the USA is relying less on direct subsidies to companies and more on tax credits. If companies dare to switch to electrification, their tax burden is reduced. Clausing says debt is definitely justified for climate protection. However, the money is best invested elsewhere, namely in projects in developing and emerging countries: “If you invest in the decarbonization of the economy in India or Africa, you can achieve much more with the same amount of money than in Germany or the United States “, says the economist.

That’s true on the one hand. However, risk and sustainability researcher Ortwin Renn noted in the BR’s policy dossier, the money in these countries often does not reach where it is needed. In addition, there is a lack of motivation if developed countries such as Germany, France or the USA do not manage their own transformation.

In the video: Billion hole, debt brake, traffic light trouble – is Germany bankrupt? Possoch clarifies