FRANKFURT (AFP) – The head of Germany’s central bank backed calls to reform the country’s stringent debt rules in comments published yesterday as years of underinvestment weigh down Europe’s second-largest economy. Relaxing the rules to allow more spending on defence and infrastructure would be a “very smart approach”, Bundesbank president Joachim Nagel told the Financial Times newspaper.
The idea of reforming the so-called debt brake, which limits state borrowing to 0.35 per cent of gross domestic product, has gained traction as the German economy has sputtered.
Berlin expects output to shrink by 0.2 per cent this year, while the outlook for business re-mains gloomy.
The spending cap, which was enshrined in the constitution in 2009, has seen Germany maintain some of the lowest debt levels in Europe.
But its critics said it has curbed sorely needed investments to boost growth or improve Germany’s defences. Differences over spending priorities under the limits imposed by the debt brake were a key reason for the collapse of Chancellor Olaf Scholz’s government last
month.
The disintegration of the Social Democrat’s three-way coalition is leading to new elections slated for late February.
Scholz has gone into the campaign with a promise to support a reform of the debt brake that would be “clearly limited to investments in security and the modernisation of Germany”.
The conservative opposition CDU-CSU bloc, which is currently ahead in the polls, has likewise signalled openness to changing the spending rules.
The conservative candidate for chancellor Friedrich Merz said last month a change could make sense if it promoted investment as opposed to allowing more day-to-day spending.
