Germany is to take the radical step of changing its constitution in order to ensure excessive public borrowing is prevented, the country's chancellor, Angela Merkel, announced on Tuesday (13 January). The country is also to impose strict new rules to ensure that the extra debt created by its latest stimulus plan is paid off quickly. Germany is to boost public spending but wants to contain borrowing at the same time Ms Merkel made the comments while unveiling a second stimulus plan worth €49.25 billion, to be spent over two years and made up of public investments and tax cuts. The constitutional amendment would prevent German governments from raising the state's public deficit above 0.5 per cent of GDP "in normal economic times", the Financial Times reports. This would have capped 2008 borrowing at €12 billion. The EU's Stability and Growth Pact, which limits Eurozone budget deficits to three per cent of GDP, was relaxed last year as the economic downturn escalated.
Germany is to take the radical step of changing its constitution in order to ensure excessive public borrowing is prevented, the country's chancellor, Angela Merkel, announced on Tuesday (13 January).
The country is also to impose strict new rules to ensure that the extra debt created by its latest stimulus plan is paid off quickly.
Germany is to boost public spending but wants to contain borrowing at the same time
Ms Merkel made the comments while unveiling a second stimulus plan worth €49.25 billion, to be spent over two years and made up of public investments and tax cuts.
The constitutional amendment would prevent German governments from raising the state's public deficit above 0.5 per cent of GDP "in normal economic times", the Financial Times reports.
This would have capped 2008 borrowing at €12 billion.
The EU's Stability and Growth Pact, which limits Eurozone budget deficits to three per cent of GDP, was relaxed last year as the economic downturn escalated.
FWIW, here's what the German constitution currently says about this:
Basic Law for the Federal Republic of Germany (Grundgesetz, GG)
Article 115 [Borrowing] (1) The borrowing of funds and the assumption of surety obligations, guarantees, or other commitments that may lead to expenditures in future fiscal years shall require authorization by a federal law specifying or permitting computation of the amounts involved. Revenue obtained by borrowing shall not exceed the total of investment expenditures provided for in the budget; exceptions shall be permissible only to avert a disturbance of the overall economic equilibrium. Details shall be regulated by a federal law.
(1) The borrowing of funds and the assumption of surety obligations, guarantees, or other commitments that may lead to expenditures in future fiscal years shall require authorization by a federal law specifying or permitting computation of the amounts involved. Revenue obtained by borrowing shall not exceed the total of investment expenditures provided for in the budget; exceptions shall be permissible only to avert a disturbance of the overall economic equilibrium. Details shall be regulated by a federal law.
But I guess this is too reasonable... The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
The big parties changed that in the first Great Coalition government (1966-69) to their liking and benefit. Of course, it was okay to permit Keynesian fiscal policies, but the new rule permitted much more spending than justifiable.
In fact the legal investment category has been conceived by lawyers and does not make economic sense.
