Connect with us
Finance Digest is a leading online platform for finance and business news, providing insights on banking, finance, technology, investing,trading, insurance, fintech, and more. The platform covers a diverse range of topics, including banking, insurance, investment, wealth management, fintech, and regulatory issues. The website publishes news, press releases, opinion and advertorials on various financial organizations, products and services which are commissioned from various Companies, Organizations, PR agencies, Bloggers etc. These commissioned articles are commercial in nature. This is not to be considered as financial advice and should be considered only for information purposes. It does not reflect the views or opinion of our website and is not to be considered an endorsement or a recommendation. We cannot guarantee the accuracy or applicability of any information provided with respect to your individual or personal circumstances. Please seek Professional advice from a qualified professional before making any financial decisions. We link to various third-party websites, affiliate sales networks, and to our advertising partners websites. When you view or click on certain links available on our articles, our partners may compensate us for displaying the content to you or make a purchase or fill a form. This will not incur any additional charges to you. To make things simpler for you to identity or distinguish advertised or sponsored articles or links, you may consider all articles or links hosted on our site as a commercial article placement. We will not be responsible for any loss you may suffer as a result of any omission or inaccuracy on the website.


Factbox-German budget crisis tests limits of its ‘debt brake’

BERLIN (Reuters) – Germany’s constitutional court ruled last week that the coalition government’s decision to re-allocate 60 billion euros ($65 billion) of unused debt from the pandemic era to climate and industry projects was unconstitutional.

The ruling has sent budget talks into disarray and sparked calls within Chancellor Olaf Scholz’s coalition to suspend a constitutionally enshrined “debt brake” that sets legal limits on borrowing.

The government’s use of off-budget funds had been a way to comply with these limits as Germany sees itself as Europe’s strongest defender of fiscal discipline.


Introduced by then Chancellor Angela Merkel’s government through a constitutional amendment in the wake of the global financial crisis of 2008/09, the brake restricts Germany’s structural budget deficit to the equivalent of 0.35% of gross domestic product.

The government can go beyond that if Germany is hit by a natural disaster or “exceptional emergencies” that are beyond the control of the state and significantly affect its finances. Such an exception must be declared by parliament through a majority of lawmakers.

The brake was introduced as a way to maintain sustainable public finances and avoid excessive debt in Europe’s biggest economy.


The parliament suspended the brake for the first time in 2020 to help the government support companies and health systems during the COVID-19 pandemic economic fallout.

The brake was suspended again in 2022 due to lingering fallout from the pandemic as well as Russia’s invasion Ukraine, as the government grappled with higher inflation, rising interest rates and soaring energy prices.

Finance Minister Christian Lindner reimposed the debt brake in 2023 but kept a 100 billion special military fund and a 200 billion package to bring down energy costs in separate funds.


Some analysts say the debt brake is ripe for reform and a more flexible fiscal policy would let governments take on more debt to fund much-needed investments.

“The debt brake was useful in the 2010s but given the long list of structural challenges, Germany’s problem is not debt sustainability but too low growth and a worsening of international competitiveness,” said ING’s economist Carsten Brzeski.

Philippa Sigl-Gloeckner at the Dezernat Zukunft macrofinance think tank told Reuters the country’s fiscal policy had become “very short-termist” due to the constraints imposed by the debt brake.

Economy Minister Robert Habeck on Monday called the instrument “inflexible” and warned that German industry risked losing its competitiveness and would ship jobs abroad unless a way to plug the budget hole could be found.

But abolishing the debt brake would require two-thirds majorities in both chambers of parliament, a difficult task.


Last week’s court verdict has left a 60 billion euro hole in the government’s finances, and an estimated gap of about 20 billion euros to finance all projects in its Climate and Transformation fund next year.

The government is still weighing options, including suspending the debt brake or curtailing spending.


(Reporting by Riham Alkousaa and Holger Hansen; editing by Matthias Williams and Christina Fincher)

Continue Reading

Why pay for news and opinions when you can get them for free?

       Subscribe for free now!

By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact

Recent Posts