In a special gathering, the Federal Government is dissecting the supplementary budget for 2023, with a potential additional debt of approximately 45 billion euros on the table. This necessitates briefly suspending the debt brake, a rule in the Basic Law that prevents new debt from surpassing 0.35% of the annual economic output. The Bundestag is scheduled to approve the bill, potentially allowing it to progress in the Bundesrat by December 15 for further discussion.
Over the years, the pressing demand for substantial investments in climate and energy programs has challenged the legitimacy of the debt brake. Indeed, a landmark court ruling in November 2023 by Germany's highest court deemed an integral part of the outgoing coalition government's funding plan for climate and energy programs unlawful. This ruling underscored the essential need for reconsidering the debt brake, as a majority of citizens prefer funding initiatives such as climate, defense, or infrastructure over maintaining the debt brake.
Industry leaders, civil society groups, numerous cities, economic experts, and state governments share this sentiment, voicing concerns about the potential consequences if the debt brake is upheld. Such condemnations hint at substantial changes likely to be seen in the budget, with a likely increase in public works project expenses and social security expenditures.
The defense budget might also witness a significant enhancement stemming from the need to meet NATO's goal of spending at least 2% of GDP on defense. This could translate into an increment in the budget from around €50 to €80-€90 billion or more, depending on the level of spending required to meet NATO's goals.
Ultimately, the Federal Council's special session aims to tackle the supplementary budget 2023, considering public opinion, the necessity of investment in various sectors, and potential repercussions on the overall budget and spending priorities.
Enrichment Insights:
- Economic Needs and Investment Requirements:
- Addressing the German economy's structural challenges in infrastructure and climate action would cost an estimated 600 billion euros over the next decade[2].
- The current defense budget is approximately €50 billion, requiring a significant increase to €80-€90 billion or more to meet NATO's 2% GDP spending goal[3].
- Debt Brake Limitations:
- The debt brake, introduced in 2009, limits the federal government's deficit to 0.35% of GDP. Criticism of this rule includes its inability to distinguish between investment and consumption expenditure, limitations in crisis response, and hampering modernization efforts and climate action[1].
- Public Opinion and Political Stance:
- Conservative leader Friedrich Merz, a possible future chancellor, publicly advocates preserving the debt brake in the constitution. However, party insiders suggest Merz may privately support reform due to Germany's substantial investment needs[2].
- Impact on Elections and Coalition Formation:
- The debate on the debt brake's role has become a contentious issue in the upcoming German elections. The Social Democrats and Greens may demand removing certain spending items from the debt brake entirely to enter a grand coalition with Friedrich Merz[2].
- The present Scholz government's failure to clarify post-special funds usage hampers efforts to escalate European arms production and leaves allies questioning Berlin's commitment[3].
