Germany will have to temporarily lift its constitutional limit on new debt for a few more years so as not to hamper economic recovery once the coronavirus pandemic eases, the chancellery’s chief of staff said Tuesday.
“The ‘debt brake’ cannot be complied with in the coming years, even with strict spending discipline,” Helge Braun wrote in a commentary for the Handelsblatt business daily.
The move is a necessary one and should be viewed as a “strategic decision for economic recovery,” added Braun, who is a close ally of Chancellor Angela Merkel.
By offering more flexibility on debt, the government can hold off on hikes in taxes or social charges.
Germany’s cherished “debt brake” is a constitutionally enshrined rule that forbids the government from borrowing more than 0.35 percent of gross domestic product (GDP) in a year.
With the economy sinking into a deep recession as entire sectors are idled due to shutdowns to halt Covid-19 transmission, Merkel’s government has stepped in with a trillion euros in aid and stimulus to tide companies and employees through.
To fund the massive aid package, Germany was forced to lift its “debt brake” for 2020 and 2021.
Braun stressed however that Europe’s biggest economy must return gradually to its limits on new debt in a few years’ time, once recovery is on track.