THE STATE

Beyond the debt brake – Towards a more flexible German fiscal policy?

At the moment, there is much debate about the German debt brake. At the VIII. New Paradigm Workshop, Philippa Sigl-Glöckner and others discussed a proposal for a reform commissioned by the Forum New Economy.

BY

DAVID KLÄFFLING

PUBLISHED

27. MAY 2021

READING TIME

2 MIN

What is the normal state of the economy and how is it determined? This question is at the core of the proposal by Philippa Sigl-Glöckner and her colleagues from Dezernat Zukunft for reforming the debt brake. In their study, which was commissioned by the Forum, they develop a proposal on how shifting the focus away from cyclical stabilization to full utilization would allow up to 64 billion euros (2.1% of GDP) more debt – without the need to amend the Basic Law (Grundgesetz).

In a similar direction, but with a different focus, Michael Hüther of IW Cologne and Jens Südekum of the University of Düsseldorf go with their proposal. Also on the panel: Monika Schnitzer, member of the German Council of Economic Experts and Shahin Vallée, German Council on Foreign Relations.

Rewatch the full session on the debt brake here

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For decades, there was a consensus that reducing the role of the state and cutting public debt would generate wealth. This contributed to a chronic underinvestment in education and public infrastructure. New research focuses on establishing when and how governments need to intervene to better contribute to long-term prosperity and to stabilize rather than aggravate economic fluctuations.

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