德国外交关系理事会-疫情之后的德国债务危机和欧洲财政立场（英文）-2021.2-12页_291kb

Summary of DGAP Policy Brief: Germany's Debt Brake and Europe's Fiscal Stance after COVID-19

Core Content

This policy brief analyzes the implications of Germany's return to its debt brake (Schuldenbremse) in the context of post-pandemic fiscal policy in Europe. It argues that a premature reimplementation of the debt brake could stifle economic recovery and undermine transatlantic cooperation, especially as the United States is pursuing a more expansive fiscal policy. The brief proposes several options to mitigate the fiscal drag and calls for a broader political debate on reforming the debt brake and the broader European fiscal framework.

Main Points

1. Risk of Premature Fiscal Tightening

• Germany's plan to return to the debt brake in 2022 would lead to a sharp fiscal consolidation, reducing the structural deficit by around 2% of GDP.
• This would result in a negative fiscal impulse for the euro area of 0.6% of GDP, significantly impacting recovery.
• The return to the debt brake is a political decision, likely influenced by the ruling coalition ahead of the 2021 general elections.

2. Current Fiscal Stance and Global Context

• The United States is implementing a large-scale fiscal stimulus (up to $1.9 trillion), creating a fiscal divide between Europe and the US.
• A tighter fiscal stance in Europe would hinder global recovery and weaken transatlantic economic ties.
• Germany's fiscal policy has historically contributed to external imbalances, as seen after the Great Financial Crisis.

3. Fiscal Framework and Flexibility

• The debt brake is more flexible than commonly perceived, with components that allow for adjustments based on economic conditions.
• The debt brake includes a structural component (maximum deficit of 0.35% of GDP), a cyclical component (based on the output gap), and a financial transactions component.
• The formula for the cyclical component can be modified without constitutional change, offering room for more fiscal space.

4. Impact on Municipalities

• The debt brake indirectly affects Kommunen (municipalities) by limiting the ability of Länder to support them.
• Many municipalities were already highly indebted before the crisis, and recent transfers have been necessary to prevent further fiscal strain.
• A broader municipal debt relief plan could be beneficial, following the example of Hesse in 2019.

Key Recommendations

1. Extending the State Contingent Suspension

• The escape clause of the debt brake can be extended as long as necessary to support economic recovery.
• This would help maintain demand support and provide forward guidance, potentially encouraging similar suspensions at the Länder level.

2. Gradual Reintroduction of the Rules

• A transition period for reintroducing the statutory limit could help ease the return to fiscal discipline.
• The German Council of Economic Experts proposed a maximum permissible structural borrowing component of 1.75–2.25% of GDP in 2022, aiming for a return to 0.35% by 2026 rather than 2024.

3. Frontloading the Use of Special Fund Reserves

• The federal government has accumulated reserves in special funds (e.g., asylum, energy, and defense-related funds) totaling €54.9 billion.
• Frontloading these reserves could provide a buffer of up to 1.5% of GDP, reducing the contractionary impact of returning to the debt brake.

4. Modifying the Cyclicality of the Rule

• The cyclical component of the debt brake can be adjusted by modifying the "budget sensitivity" parameter or the output gap calculation.
• These changes could increase fiscal flexibility during downturns and reduce procyclical bias.

5. Extending Repayment Periods

• The current repayment schedule for excess borrowing reduces future fiscal flexibility.
• Extending repayment periods and making them countercyclical (e.g., tied to economic performance) could help avoid a fiscal cliff and support recovery.

Conclusion

• The debt brake's rigid structure may not be well-suited to the post-pandemic economic environment.
• Reforms are necessary to address the limitations of the current fiscal framework and to ensure a more resilient and flexible approach to fiscal policy in Germany and Europe.
• Constitutional amendments may be required, but there is a precedent for such changes, and political consensus exists to pursue them.

Key Information

• Estimated Net Borrowing for 2020 and 2021: €199 billion and €114 billion respectively.
• Planned 2022 Net Borrowing Under Debt Brake: €24 billion.
• Total Extraordinary Borrowing by Länder: Around €130.4 billion.
• Repayment Periods for Länder: Range from 4 to 50 years, with some extending beyond 2050.
• Potential Impact of Fiscal Tightening: A contractionary fiscal impulse of 0.6% of GDP for the euro area.
• Fiscal Drag Risk: A return to the debt brake could significantly stifle recovery and undermine global coordination.

Tables Summary

Table 1: Budgetary Projections (in billion EUR)

Table 2: Land-Specific Borrowing and Repayment Schedules

Final Thoughts

• The debt brake, while a symbol of fiscal discipline, may not be appropriate for the current economic climate.
• Reforms are essential to address the limitations of the current framework and to support a more coordinated and effective fiscal response to the pandemic.
• A political debate on the reform of the debt brake and the broader European fiscal stance is necessary to ensure long-term economic stability and cooperation.