Economists Defend the Debt Brake
The majority of economists at German-language universities continue to support the debt brake which limits new government borrowing. Even historically low interest rates and calls for higher investments in infrastructure and climate protection will not change this. This is shown by the latest ifo and FAZ Economists Panel, a regular survey of 120 economics professors.
“The impression has arisen in public debate that economists want to get rid of the debt brake. That’s not what our results say,” says Niklas Potrafke, Director of the ifo Center for Public Finance and Political Economy. He added that the debt brake should also not be held responsible for a lack of public investment. As Clemens Fuest, President of the ifo Institute, points out: “Lack of public investment has other causes than the debt brake.”
A debt ban applies to Germany’s federal states; the federal government is permitted a deficit of 0.35 percent of nominal GDP, i.e., around EUR 12 billion, in normal economic conditions, and somewhat more in poor ones. The intention is for politicians to be better able to budget with limited resources and still have room for maneuver to stabilize the economy in downturns. Of the participating professors, 64 advised that the debt brake should be maintained in principle. Only a minority of 31 professors wanted to abolish the regulation, while 17 said they were “undecided.” A majority of 52 percent is convinced that the decline in the public debt in recent years would have been significantly lower without the debt brake. Consensus was greatest on the question of whether the debt brake should be lifted for climate protection measures, with 24 percent of the economists surveyed considering this to be justified and two-thirds against it.
In contrast, the impact of the debt brake on public investment was a contentious issue. While 37 percent of the economists believe that the debt brake is quite literally slowing down future-oriented government spending, 41 percent do not share these concerns, with 18 percent undecided. But it is the question of the “black zero” that most starkly divides Germany’s economists. A majority of the participating professors are skeptical about this strict budgeting policy: 48 percent are against it, only 34 percent are in favor of maintaining it, and 18 percent are unwilling to commit themselves.
“The black zero has a symbolic power that should not be underestimated,” says Silke Übelmesser, a professor at the University of Jena and member of the advisory board of the Stability Council, which oversees the budget management for the federal government and the Länder. The tone is clearer among the policy’s critics. They talk of “ideology” and a “web of lies in fiscal policy,” mostly with reference to the current economic slowdown, which requires higher spending, and to the investment backlog. “How can one be so bold as to not incur debts for the sake of the children but then in return leave them a broken environment?” asks the former “wise man of economics” Peter Bofinger. Karl Morasch of the Bundeswehr University Munich calls the rigorous avoidance of new debt “economically unjustifiable.”
“Debt brake yes, black zero no,” says the Braunschweig-based economist Franz Peter Lang. A large number of researchers come to the similarly nuanced conclusion that they neither completely disapprove of a government deficit nor approve of boundless borrowing.
“The debt brake will protect us from excessive overpromising in pensions and social security,” says Christian Hagist of WHU – Otto Beisheim School of Management in Vallendar. Friedrich Heinemann, a tax expert at the ZEW – Leibniz Centre for European Economic Research in Mannheim, also points to the political resistance that often stands in the way of implementing projects that could already be financed today.
