Balanced Budget Rule(Debt Brake) in Germany and the Need for Its Reform

In the face of American economic crisis and its spread to Europe in 2008-2009, German Government revised its Basic Law(Constitution) to incorporate balanced budget rule, or debt brake into it in 2009. Debt Brake stipulates that net borrowing by the federal government should not exceed 0.35% of Gross Domestic Product(GDP), except for natural disasters and war. After Russian invasion of Ukraine in February 2022. German economy has recorded successive recession in 2023 and 2024. In the midst of wrangling over flexible application of the balanced budget rule, Social Democrat Chancellor Olaf Scholz fired Free Democrat Finance Minister Christina Lindner in November 2023, saying that the Minister refused to follow his instructions to moderate the rule. The collapse of the ‘traffic light’ coalition brought forward the Bundestag election on 23 February 2025, seven months earlier than scheduled. Gallup polls over a year predict that center-right Christian Democrat and Christian Social Unions are likely to get the biggest votes, yet they need to form a coalition either with the Social Democrat or the Greens. Both the centre-left parties favour either revising or moderating the balanced budget rule to stimulate the stagnant economy. So it is probable that debt brake will at least be flexibly applied to kick-start economy again, when the new coalition government enters office in spring 2025.