Future fiscal restraint should not hinder prospective progress

The debate on debt brake reform in Germany has taken centre stage, with the severe flooding in December and January serving as a stark reminder of the need for investment in climate protection and a resilient society.

The Federal Constitutional Court's budget judgement of November 2023 has played a significant role in this current debate. The judgement, which calls for criteria to determine when debt limits can be relaxed in emergency situations, has sparked discussions on the balance between fiscal responsibility and emergency funding in crisis situations.

A study published by the German Institute for Economic Research (DIW Berlin) in 2023 has proposed solutions for a sustainable reform of the debt brake, focusing on opportunities for climate protection expenditures. The study suggests that monies spent on a sustainable economy, infrastructure, education, and innovation are important investments that will continue to have a crucial impact in the future.

The study also investigates paths towards the sustainable reform of the debt brake for future investments. It contends that these investments may serve to safeguard or expand the state's spending flexibility, ensuring that the country is better prepared to face future emergencies.

The Heinrich Booll Foundation has also weighed in on the debate with a study titled "Finanzierung öffentlicher Zukunftsinvestitionen nach dem Haushaltsurteil des Bundesverfassungsgerichts". The study explores ways to make spending on climate protection possible without a constitutional change to the debt brake. The foundation has already worked on the connection between debt cancellation and the transition to a climate-neutral economy.

The severe flooding, dubbed the "Christmas floods", are considered an "unusual emergency situation" that could justify the suspension of the debt brake. For the fifth year in a row, calls have been made to suspend the debt brake due to these floods. However, the back-and-forth process is expected to continue, as emergency situations, particularly extreme weather events, are likely to recur.

The lack of preventive investment may contribute to a cycle of recurring crises. The debate over the debt brake follows a predictable pattern: calls to relax it during emergencies are met with suggestions to wait and assess the costs, ensuring proportionality.

As the debate moves forward, a constructive, cross-party discussion is needed on the way out of the debt brake and towards a sustainable investment rule that does not compromise the needs of the future. The landmark judgement of the Federal Constitutional Court on the Climate Change Act from 2021 is also relevant to this debate, underscoring the need for a long-term, sustainable approach to climate protection and investment.