BRUSSELS — Germany’s law banning its government from running up debt is more to blame for a lack of investment than EU spending rules, the European economy commissioner said.
Valdis Dombrovskis dismissed claims by German politicians that the bloc’s rules are stricter than Berlin’s domestic “debt brake,” part of an increasingly noisy debate in the run-up to the country’s Feb. 23 election that looks set to see Chancellor Olaf Scholz lose power.
“On a number of occasions [the debt brake] can be actually placing stricter fiscal requirements on Germany than our new economic governance framework,” Dombrovskis said during a press conference in Strasbourg on Wednesday.
Pressure is growing on Christian Democratic Union (CDU) leader Friedrich Merz, Germany’s likely next chancellor according to opinion polls, to loosen the country’s spending constraints as the economy tanks. While he, at times, has cautiously opened the door to reform in order to sustain greater investment, his party’s official line is to adhere to the spending rules. “The debts of today are the tax increases of tomorrow,” reads the party’s election manifesto.
Scholz’s center-left Social Democratic Party (SPD) and the Greens, currently in government, support more drastic changes to the country’s self-imposed rule that limits the difference between spending and revenues to 0.35 percent of GDP, except in times of emergency.
The fiscally conservative Free Democratic Party (FDP) wants to keep the so-called Schuldenbremse untouched.
Its leader and former German Finance Minister Christian Lindner said that deleting the debt brake is pointless because the EU’s rules would still require higher spending cuts.
While Brussels’ new fiscal framework gives countries more time to rein in spending, it imposes annual targets to cut debt and deficit that were, notably, introduced at Lindner’s insistence.
Germany’s decision
A talismanic symbol of Germany’s tight public finances, critics claim that the debt brake limits the country’s efforts to revamp its flagging productivity by investing on climate and defense.
Former Chancellor Angela Merkel, who enshrined the debt brake in the German constitution in 2009, recently supported its reform to sustain higher investments.
But the ever-cautious Dombrovskis, who is known in Brussels as a strict fiscal conservative who frequently sides with Germany and its lack of lavish spending, stopped short of heeding such calls.
“It’s a decision for Germany to take,” he said shortly after announcing a probe into the country for its mismatch between high export revenues and weak domestic investments.
The EU’s biggest economy was one of nine countries to be placed under a so-called Macroeconomic Imbalance Procedure earlier this year.
While its exports are competitive, Dombrovskis said, the country is experiencing “underinvestment in the economy and that’s why the Commission has consistently been recommending Germany to strengthen the public and private investment.”
Nette Nöstlinger contributed to this report.
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