Updates from the German economy
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One of Angela Merkel’s closest aides found himself in the midst of a political storm on Tuesday when his call for a suspension of Germany’s strict restrictions on budget deficits sparked a backlash from members of his own party.
Helge Braun, chief of staff to Ms Merkel, said that Germany “would not be able to comply with the debt brakeIn the coming years and suggested that the country’s constitution be amended to allow it to take out new loans.
The proposal, contained in an article for the newspaper Handelsblatt, marked a sharp break with the fiscal orthodoxy of Merkel’s Christian Democratic Union, a party that for years had been committed to the politics of schwarze Null or “black zero” – the pursuit of balanced budgets.
At stake is the debt brake, a measure enshrined in the German constitution, which limits the country’s budget deficit to just 0.35% of gross domestic product. Many in Germany believe that at a time when public spending has been massively increased to deal with the corona crisis, the drag is an anachronism.
But Mr Braun’s proposal drew a furious reaction from other prominent CDU figures. Paul Ziemiak, secretary general of the CDU, said the party was “clearly committed to the debt brake”, which he said had allowed Germany to “deploy the financial firepower needed in the pandemic” .
Mr Braun has also been harshly criticized by Armin Laschet, the newly elected leader of the CDU. In his first meeting with CDU MPs since his election as President 10 days ago, he said members of the government should coordinate with the CDU / CSU parliamentary group and the party before embarking on any such questions, according to a meeting participant.
The government has also distanced itself from Mr. Braun’s intervention, a spokesperson saying it was his “personal opinion”.
Stung by the backlash, Mr Braun later appeared to row, tweeting that he “liked” the debt brake and insisting that his proposal was to “chart the legislative path to black zero after the pandemic” and “not to call the debt rule in doubt”.
The debt brake has been temporarily suspended as Berlin increased spending to deal with the economic fallout from the pandemic. The government contracted € 130 billion in debt in 2020 and plans to contract € 180 billion this year, the largest amount in its post-war history. The increase in spending marks a significant departure from the fiscal policies of the 2010s, when Germany experienced six years of balanced budgets.
In the Handelsblatt article, Mr Braun, who is a CDU MP and Chancellor, said it made no sense to continue to suspend the debt brake on an ad hoc basis.
“For this reason, it would be wise to link an economic stimulus strategy in Germany to a constitutional amendment which would provide a reliable corridor for new borrowing – on a decreasing scale and limited to the next few years – and which would stipulate a precise date. for the return to compliance with the debt rule, ”he declared.
He also proposed a moratorium on tax increases and said social security contributions should be stabilized at their current level until 2023.
However, CDU politicians insisted that the debt brake be reintroduced, as planned, in 2022. “We need to get back to healthy budgets as soon as possible after the pandemic,” Ziemiak said. “It is only fair for future generations.”
Eckhardt Rehberg, the CDU’s main spokesperson on budgetary matters, said that for the CDU / CSU parliamentary group, “strong finances are not negotiable”.
“The cause of the euro crisis was not too little but too much debt,” he said. “When interest rates rise again, high debt means high risks for future budgets.”
However, the Social Democrats, a junior partner of Merkel’s grand coalition, welcomed Mr Braun’s proposal, with Finance Minister Olaf Scholz calling it “many virtues”. But he noted that this would require big changes in German law that “require a broad consensus among the parties”.