This Policy Brief was co-authored by Dr. Nils Redeker, Deputy Director of the Jacques Delors Centre, and Lucas Guttenberg, Senior Advisor at Bertelsmann Stiftung
There has been a lively debate in Germany about whether and how the debt brake should be reformed in order to be able to meet important investment requirements. However, it is repeatedly argued that the recently reformed EU fiscal rules are more restrictive for Germany than the debt brake. If this were true, a reform of the debt brake would either be worthless or the newly created room for manoeuvre could only be used at the cost of breaking European rules.
In this Policy Brief, we analyse the interaction between the EU fiscal rules and the debt brake and come to a differentiated conclusion: Firstly, the European rules systematically contain more leeway for debt-financed expenditure than the debt brake. This additional room for manoeuvre arises both in the definition of the multi-annual expenditure path and subsequently in the monitoring of the rules. Secondly, the room for manoeuvre increases because debt-financed expenditure is used to strengthen growth and growth potential and is accompanied by reforms that increase growth potential. Thirdly, the European rules clearly restrict the expansion of consumer spending. However, defence spending is an exception to this.