BERLIN – Chancellor Angela Merkel's chief of staff has floated the idea of Germany suspending rules to prevent the government running up new debt for several years as Europe's biggest economy digests the impact of the coronavirus pandemic.
In an article for Tuesday's edition of the Handelsblatt business daily, Helge Braun advocated stabilizing employees' social welfare contributions until the end of 2023 and doing without tax increases.
He wrote that such a “strategic decision for the economic recovery” would have significant consequences for the budget — "in concrete terms, the ‘debt brake’ can't be kept to in the coming years even with otherwise strong spending discipline.”
The so-called “debt brake," which was introduced a decade ago, allows new borrowing to the tune of only 0.35% of annual gross domestic product, though it can be suspended to deal with natural disasters or other emergencies that are out of the state's control.
Braun’s intervention was remarkable given that the debt rules have long been a point of pride for Merkel’s center-right Union bloc and this is an election year. Germans will elect a new parliament on Sept. 26, a vote that will determine who succeeds Merkel as chancellor after 16 years.
It drew strong pushback from other leading Union politicians. Budget spokesman Eckhardt Rehberg described the proposal as Braun’s “personal opinion.” Parliamentary group leader Ralph Brinkhaus said the rules already contain sufficient flexibility and “financial solidity is important.”
After six years in the black, Germany resorted to running up new debt in 2020 to help cover the cost of huge support packages made necessary by the coronavirus pandemic and an expected shortfall in tax revenue.
The “debt brake” was suspended to allow up to 217.8 billion euros ($265 billion) in new borrowing. Eventually, Germany borrowed only 130.5 billion euros; the economy suffered less badly than expected, declining by 5% — still a better outcome than long expected. The rule is being suspended for 2021 as well.