Economists Disagree on Germany’s Debt Brake and 2024 Budget

German economists are divided on the country’s federal budget and the debt brake. Of those surveyed, 48 percent are in favor of prioritizing spending cuts in the 2024 budget; 38 percent see an increase in government borrowing as the primary way to inject more money into the 2024 budget. These are findings from the Economists Panel, a survey of economic experts at German universities by the ifo Institute. “There are similar levels of support for the existing debt brake and for a reformed, investment-based version. What respondents agree on is that the debt brake should not be abolished completely,” says ifo President Clemens Fuest.  “The respondents’ preference for spending cuts could be a reaction to the expansion of government spending in recent years,” explains ifo researcher Niklas Potrafke.

At the same time, there is a sizeable group of respondents who see an increase in government borrowing, rather than cuts in spending, as the solution to the budget gap in 2024: around 15 percent call for a reform or abolition of the debt brake to create scope for additional spending, while a further 18 percent want special funds for climate and infrastructure to be enshrined in the Basic Law. Just 5 percent are in favor of again suspending the debt brake, with another 5 percent demanding tax increases. In addition, 7 percent support other measures; many advocate a mixture of savings and higher tax revenues.

Around two-thirds of respondents in the ifo Economists Panel support the German government’s approach of retroactively declaring an emergency situation for 2023 and thus suspending the debt brake. They argue that this is the only way to end the year with a constitutional budget in the short term. It is not possible to turn back the clock and save more during the year. All alternatives would cause considerable uncertainty for companies and households and jeopardize climate targets. However, 28 percent of respondents reject this course of action.

The professors are divided on the future of the debt brake: 48 percent want to retain the debt brake in its current form, 44 percent want to keep it but reform it, while 6 percent want to abolish it altogether.
 
A total of 187 economics professors took part in the survey from November 28 to December 5.