Bundesbank calls for more debt

 The Bundesbank has never been known for its generous spending . The former central bank of the D-Mark, now part of the Eurosystem, always placed value on a strong currency - and on state austerity, which it viewed as the basis for this. It is therefore remarkable that the institution is now advocating higher levels of debt than the debt brake in the Basic Law has previously permitted.

The shift had been hinted at, for example, at the World Economic Forum in Davos in January. "We live in a world with tectonic shifts," said Bundesbank chief Joachim Nagel there, "and we must face up to these changes." On Tuesday, the concrete proposal was published that could play a role in the negotiations between the CDU/CSU and SPD on the formation of the new federal government. The leaders of both parties are faced with the question of where they will get the hundreds of billions of euros needed to support Ukraine, upgrade the German armed forces and invest in civil infrastructure.

At the moment, the debt rule only allows the federal government to borrow 0.35 percent of the gross domestic product (GDP) per year, which amounts to around 15 billion euros. In cases of a bad economy, the permissible loan amount can rise to more than 30 billion euros. States and municipalities are not allowed to take on debt.

The Bundesbank, on the other hand, proposes raising annual debt to at least 0.9 percent of GDP if the state's total debt is already above the 60 percent limit set out in the EU treaties. This is currently the case. If total debt falls below 60 percent in the future, borrowing of up to 1.4 percent of GDP should be permitted. The additional scope for investment would therefore amount to around 100 to 220 billion euros by 2030, or between 16 and 37 billion euros annually, with the funds to be shared between the federal government, states and municipalities.

Significantly more scope

The Bundesbank recommends changing the debt rule in the Basic Law accordingly. At the same time, it would also be possible to set up a larger special fund to better finance the Bundeswehr. However, these loans would have to be counted towards the new rule. The same should apply to higher defense spending that may result from a change in EU policy.

If the next coalition and the Bundestag were to follow this proposal, significantly more money would be available. However, this scope would not be enough to cover the additional debt of up to 100 billion euros that is currently being discussed in the exploratory talks between the CDU/CSU and the SPD.

"It is gratifying that the Bundesbank is bringing a new element into the negotiations on forming a government," said Sebastian Dullien, head of the trade union-affiliated Institute for Macroeconomics (IMK) . He called for the debt brake to be relaxed so that additional credit-financed investment spending of, for example, 60 billion euros annually over ten years would be possible. This should serve, among other things, to modernize transport routes.

GDP would increase

According to new calculations by the IMK, this would lead to a significant increase in Germany's gross domestic product. This is also the reason why the national debt ratio - the ratio of economic output to debt - will not increase in the medium term, but will, on the contrary, decrease, argued the institute. Dullien is in favor of a reform of the debt brake and spoke out against the supposedly simple solution of using new special funds.

The four economists Clemens Fuest, Michael Hüther, Moritz Schularik and Jens Südekum suggested this approach, using the two-thirds majority of the old Bundestag to amend the Basic Law. They fear that a reform of the debt brake will fail due to the blocking minority of the anti-armament parties AfD and the Left in the new Bundestag. The four economists propose a special fund of 400 billion euros for the Bundeswehr and one of 500 billion euros for infrastructure.