Frankfurt [Germany], January 5: Up to 98 percent of respondents in a survey by Deutsche Bank believe Germany's debt brake policy should be reformed, according to results published on Thursday.
The debt brake was introduced in 2009 as part of constitutional reforms following the global financial crisis of 2007-2008.
Calls for easing or removing the policy have grown louder as the European Union's (EU) largest economy faces another year of recession. Critics argue that the debt brake, which imposes strict limits on government borrowing, hinders Germany's ability to respond to current economic challenges.
Germany's federal government ended electric vehicle subsidies early in late 2023 after the Constitutional Court blocked the reallocation of 60 billion euros in unused pandemic funds.
The debt brake "is breaking its economy," the German Institute for Economic Research (DIW) said in a report.
Sales of electric vehicles fell in 2024, with the subsidy cuts largely blamed. German automakers and suppliers have reported declining profits, prompting layoffs at companies including Volkswagen and Bosch as the automotive sector faces mounting pressure.
The debt brake limits Germany's structural budget deficit to 0.35 percent of gross domestic product (GDP) in normal times. It helped establish Germany as an economic anchor during the EU debt crisis when some member states struggled with repayments and doubts over the euro's stability grew.
However, with Germany in recession, politicians across the spectrum are questioning the debt brake's sustainability, saying it restricts public spending needed to tackle economic difficulties.
"Budget rules are intended to increase the resilience of public finances. However, this is precisely what the debt brake established in 2009 does not do. Time for a reform!" Bert Ruerup, chief economist at Handelsblatt and president of the Handelsblatt Research Institute, wrote in a column published Friday.
The issue has sparked heated debate in the Bundestag.
"The debt limit is no longer fit for purpose in its current form" and it "poses a risk to the welfare of current and future generations," the SPD parliamentary group said in a report. "Not allowing money to be borrowed for future investments can prove fatal for an economy in the long run," local media quoted the report as saying in January last year.
The debt brake was a point of contention within the ruling coalition, with the SPD and Greens advocating for reform while the FDP opposed changes. The conflict ultimately led to the coalition's collapse in November when Chancellor Olaf Scholz dismissed Finance Minister and FDP leader Christian Lindner.
While reform discussions are expected in 2025, experts warn that changes alone may not revive the economy. Delays in investment, high energy costs, and bureaucracy remain significant hurdles.
Germany's Growth Initiative noted that while record public investments are planned, "the bulk of investments must come from the private sector."
Source: Xinhua News Agency
