Easing the Brake
Is German Finance Minister Watering Down Budget Limits?
A report in Germany's mass-circulation Bild suggests that Finance Minister Wolfgang Schäuble is seeking ways to circumvent a constitutional amendment that will require balanced budgets in the country by 2016. It would give greater flexibility in times of crises, but is likely to raise eyebrows in countries where Germany has ordered further austerity measures.
The German mass-circulation daily Bild is reporting that Finance Minister Wolfgang Schäuble is preparing a plan that would allow his country to circumvent a constitutional amendment requiring balanced federal budgets in order to deal with the worst effects of the financial crisis and bank bailouts.
Germany is currently able to borrow money at almost no cost whatsoever, and in some cases investors are even paying the German government a premium for its securities. Nevertheless, the country is not only calling for austerity in other countries in Europe, but is also implementing its own spending limits.
Starting in 2016, the country's so-called debt brake, or balanced budget amendment, will go into effect. The constitutional amendment will strictly limit annual government borrowing, ensuring that the country remains within the stipulation set out in the euro stability and growth pact that annual budget deficits not exceed 3 percent of gross domestic product.
The last government, the grand coalition between Chancellor Angela Merkel's conservative Christian Democratic Union and the center-left Social Democratic Party, anchored the legislation in the country's constitution. But it appears that the current finance minister is searching for a workaround.
More Borrowing with Blessing of Parliament?
Under Schäuble's plan, the government is to be given a loophole to exceed the debt limit once the permissible level of borrowing has been reached, mass-circulation Bild newspaper reported on Tuesday. All the government would have to do would be to draft a plan for repaying the debt and secure parliamentary approval for it.
The Finance Ministry so far hasn't commented on the news. In its report, the newspaper cites the draft of a modification to the Financial Market Stabilization Law, which contains measures aimed at stabilizing the financial markets in tumultuous times. The law went into effect in October 2008, close to one month after the collapse of Lehman Brothers.
With his modification to the law, Schäuble appears to be preparing a mechanism for new turbulence in the future in a move that suggests the euro crisis could worsen in the coming months. One extreme scenario could see a Greek default and the country's exit from the euro zone. It is also possible that European banks will soon require bailouts again. Schäuble is seeking the ability to skirt the debt brake in an emergency, the paper reports.
But the initiative is a divisive one in Schäuble's party, the CDU. The party's budget policy spokesman, Norbert Brackmann, criticized the draft, telling Bild, "with this, more borrowing will be able to take place than the debt brake permits. Then we will create a new bubble of the type that has already been a disaster for us once before. That's not ok."