The German 'debt brake': A shining example for European fiscal policy?

Achim Truger and Henner Will

No 15/2012, IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE)

Abstract: Many observers consider the German 'debt brake' beyond criticism. In the current crisis, many European countries have difficulties refinancing their budgets, while the German treasury's funding conditions are most favourable. The 'fiscal compact's' call for the introduction of German-style 'debt brakes' in the constitutions of other countries in order to rebuild their credibility on financial markets therefore might seem reasonable. However, there are several reasons to doubt the underlying (macro-) economic reasoning. Two specific problems of the German debt brake are analysed in greater detail: Firstly, the German rule is neither simple nor transparent. The calculation of structural deficits is a complex matter highly sensitive to specification and therefore open to political manipulation. Secondly, the debt brake will ultimately have a pro-cyclical effect because of the way the commonly used cyclical adjustment method works. This will, as a result, destabilise the economy. The German debt brake can therefore hardly serve as a good example for other countries.

Keywords: Germany; debt brake; Euro zone; Euro crisis; sovereign debt (search for similar items in EconPapers)
JEL-codes: H12 H39 H50 H6 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/67383/1/730579670.pdf (application/pdf)

Related works:
Journal Article: The German “debt brake”: a shining example for European fiscal policy? (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:ipewps:152012

Access Statistics for this paper

More papers in IPE Working Papers from Berlin School of Economics and Law, Institute for International Political Economy (IPE) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().