One point of discussion in the traffic light negotiations is the debt brake.
(Photo: Reuters)
The fiscal policy debate is not lacking in imagination. It is sparked by the determination of the traffic light exploratory paper to comply with the debt brake: The focus is on investment companies, increasing the equity of public companies such as Deutsche Bahn or one-off aid from the Corona debt bottle thanks to the suspended debt brake.
So far, the interlinking of new fiscal leeway with the European regulatory framework has been neglected. In Brussels, the discussion on adapting the Stability and Growth Pact is only really getting underway, and the coalition’s attention should be directed towards interlinking the two reform processes.
In the post-corona period, Germany would have gained a lot of leeway if the debt brake were not significantly stricter than the EU rules. After the corona crisis has ended, these allow a gentler way back from the currently high corona deficits to the maximum permissible limit compared to the debt brake.
According to European rules, this legislature could therefore open up fiscal leeway of at least 50 billion for Germany, which is locked under the debt brake. Even in the long term, the EU rules are already opening up more leeway: Instead of the debt brake of 0.35 percent, the EU rules allow up to one percent and thus around 20 billion a year for more investments, provided Germany complies with the European debt criterion of 60 percent. According to the IMF forecast, this should be the case again from 2026.
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In legal terms, however, these rule differences do not result in the sharp sword that EU law has priority over national law, with the result that the debt brake would not be applicable. Because nationally more restrictive rules may also be enacted if this promotes EU budget consolidation. If you wanted to use the European room for maneuver, this would be possible with investment companies or capital increases.
Armin Steinbach is Professor of Law and Economics at the École des hautes études commerciales (HEC) Paris. He headed the keynote speeches in the Federal Ministry of Finance and the Federal Ministry of Economics.
Exceptions for green investments
A reform approach that is currently popular in the EU Commission, however, is: privileging green investments and not counting them against the debt rules. The Netherlands is pursuing a similar approach at national level.
For a long time, the underlying idea of a golden rule had no prospect of implementation in Europe – the EU and member states treat investments in their national budgets and statistics too differently. And the incentive to greenwash national spending seemed too great.
That could change with the taxonomy recently introduced by EU legislators: This set of rules defines requirements for sustainable investments. Although originally created for the transparency of private investments, the member states have meanwhile also got practice in screening public investments in terms of climate policy.
As part of the resilience plans of the EU Corona Fund, the member states have had the Commission certify the climate-friendly harmlessness of their fiscal impulses in a complex process.
It would work similarly with the implementation of a green rule. This would prevent excessive self-certification of green investments by the member states.
Adjustment of the debt brake
The German debt rule is indifferent to green or brown investments. A green EU fiscal rule could then comply with the debt brake in two ways. Either the EU obliges the member states as part of its economic policy coordination to exempt green investments from national debt rules.
The basis for this would be that effective coordination in the EU and the implementation of the European Green Deal would be jeopardized by overly restrictive national rules – this would be a novelty as an enforcement of national debt rules and would require the approval of the member states. As a consequence, the debt brake would have to be interpreted or adjusted accordingly on this point.
The alternative would be to use the existing loopholes in the debt brake, for example through explicitly green investment measures such as upgrading the Federal Real Estate Agency for the renovation of federal buildings or green financial injections for Deutsche Bahn and an expanded mandate from the KfW development bank. In any case, the coalition agreement should be open to development in order to synchronize the German and European reform process.
More: Higher investments despite the debt brake. A comment.