A critical situation can be a remarkable decision -making accelerator. In the Bundestag, Tuesday, March 18, more than two -thirds of German deputies approved the reform of the debt brake which limited, since the end of the 2008 financial crisis, the borrowing capacities of Germany. The country will now be able to spend almost without counting to protect itself and modernize a more than aging army.
A major turning point for the first European economic power, which, faced with the Russian danger and the disengagement of the United States vis-à-vis the old continent, decided to take charge in hand. For L’Express, Monika Schnitzer, president of the German Council for Economic Experts, analyzes cultural springs and reasons for this political turn.
L’Express: would you qualify this history reform?
Monika Schnitzer: I am generally cautious with these kinds of expressions. But I think it is historic in several respects. First, the very magnitude of the potential debt that the government can now contract is unprecedented. Even if, reported over a period of 10 or 12 years, the amount may seem less impressive.
In addition, for several years, the political opposition to the modification of the debt to debt was strong – not on the part of the Social Democrats or the environmentalists, but of the conservatives and the liberals. It is for this reason that the previous government fell: it failed to find an agreement, and the conservative opposition refused any compromise. However, after an election where the conservatives still affirmed: “No, no, we will not touch it”, seeing them go about in the space of a day is quite remarkable. But we are experiencing a historic era – with the war in Ukraine and an American president threatening to interrupt his military support for European partners – who calls for magnitude.
Is such a decision inevitable?
As a council of economic experts, we had, like many others, warned long before the election that a reform of the brake on debt focused on stability was necessary. The situation – almost zero growth, two consecutive years of recession, ruined infrastructure, non -existent defense – was not viable. It was necessary to act, to find more funds. Our relationship showed that this mechanism was too restrictive, more than it should be. It was possible to slightly increase structural debt while maintaining a sustainable frame. For all observers, a reform after the election was inevitable.
What may have surprised the conservatives, despite our long-standing warnings is that the new government no longer had the majority of two thirds required to modify the debt brake, since it is a constitutional law. So he had to act very quickly. But in the end, even if the process was chaotic, he managed to bring together the necessary voices. Even the ecological party ended up helping him reach the two -thirds threshold.
How do you explain the longevity of this frame?
In reality, it did not last so long. The law was adopted in 2009, after the financial crisis, and entered into force in 2011, with a transition period until 2016. We are therefore talking about ten years. When the economic situation was good, this text was not necessary and therefore did not really constitute a constraint. But when the situation deteriorated, it had to be changed. Which raises the question of whether it had been set up in an appropriate manner …
Before debt brake, deficits were authorized, provided they are used for investment or to avoid an imminent crisis. However, there was no clear definition of these two terms. During the financial crisis, people achieved: “We have no more growth. We have accumulated a huge debt. Our rulers do not manage our finances well.” They therefore decided to limit the possibilities of going into debt. But what they have not seen is that it is not so much a question of political temptation to spend too much, but to spend for bad reasons.
What is the symbolic significance of this reform?
It carries a strong symbolic message on several levels. First, it sends a clear signal to Trump, Putin and our European partners. To the Russian and American presidents, she shows that we take our responsibilities and that we are committed to investing in defense. With regard to the European Union, it marks our desire to invest in infrastructure to stimulate economic growth, which will not only benefit our country, but also to all of Europe.
The agreement between the three parties was not easy to obtain, especially with the fiery rhetoric of the electoral campaign. In fact, the previous coalition failed precisely because they could not find common ground. Although differences remain, this reform shows that when necessary, political forces can make compromises and concessions for the general interest.
This principle has often been presented as untouchable. Why was he so central to the economic and political culture of the country?
The idea of German fiscal rigor has often been presented as deeply rooted in national identity, but it is probably more the product of the dominant political discourse of the last ten years than of an intrinsic cultural trait. This speech was based on two main ideas. First, that that politicians cannot be trustworthy with public money and are likely to waste it. Then, this metaphor introduced by Angela Merkel: that of the Souabe housewife [NDLR : du nom d’une région sud ouest de l’Allemagne]. Souhabes are known for their economy and financial discipline: they avoid unnecessary spending and consume only what they have previously saved. Although this approach has meaning for a home, it is not necessarily applicable to a government.
A state, unlike an individual, has no limited lifespan. The debt can be transmitted to future generations, as long as the cost of its service remains sustainable. More importantly, the loan can be justified if it is used for long -term investments – such as infrastructure, education or defense – which will benefit future generations. Thus, although tax discipline remains important, rigid membership of the idea of avoiding debt at all costs is not always the best economic strategy, especially in times of crisis.
How is this sudden change perceived by public opinion today?
Public reactions are somewhat shared, but overall, a feeling of relief prevails. Many recognize the need to change, especially to stimulate the economy. Companies, in particular, positively welcome the decision, seeing it as a necessary step to encourage investment and generate new contracts and orders.
However, the decision also generates frustration, especially concerning the inconsistency of conservatives. Before the elections, they had firmly stated that they would not change this principle, and then come back to this position after the fact. Although a rational observer has been able to predict this change, given the economic context, this flip-flop still leaves part of the public opinion perplexed.
That said, market reactions have been largely positive, reflecting some confidence in the reform. If economic growth follows, public opinion could evolve in favor of the decision, and more and more people will recognize it as being the right one.
What are the short and long -term economic repercussions of this reform?
In the short term, the immediate economic impact of investments will be limited, because expenses take time to materialize. If we look at the past examples, such as the Special Defense Fund in 2022, it was obvious that before money was actually spent, planning and supply processes were to be put in place. It will be the same here, which means that a real boost for growth is unlikely this year. However, from next year, as investments are starting to flock, especially in infrastructure, their impact will be more visible.
Beyond direct investment, the most crucial short-term effect is the reduction of uncertainty. During our analysis of the economic situation in November, it was clear that political instability – due to internal government struggle and global factors – slowed businesses. This uncertainty also affected consumer confidence, who spared more for fear of their employment safety and economic prospects. By clarifying the government’s management, this reform could restore confidence and encourage companies and consumers to move forward.
In the long term, economic effects will largely depend on how funds will be allocated. Investments in infrastructure will have a positive impact, stimulating domestic demand and improving economic efficiency. However, concerns about the increase in debt could sow doubts, making political discourse around this essential reform. As the two major parties are in favor, as well as business leaders, this reform has the potential to be a decisive turning point for the economy, if it is well managed.
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