Germanys constitutional court ruling on the federal supplementary budget of 2021 and its strict interpretation of debt-brake borrowing limitations have reinforced the countrys rigid fiscal rules but also intensified debate on their possible reform.
Such reform could encourage future German governments to increase long-term investment and address a EUR 300bn investment lag, while raising the countrys growth potential. Over the past three decades, Germanys net public sector investment has fallen behind that of other AAA-rated sovereigns and other large economies (Figure 1).
The fiscal space to increase investment is available. The question remains whether political consensus can be achieved to agree on a reformed debt brake that enabl…
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