Debt Brake Rule UPSC NOTE

 What is the debt brake rule?

  • The debt brake rule, or the balanced budget rule, sets a cap on how much governments can borrow to finance various public projects. 

  • It restricts the federal government in Berlin from running a fiscal deficit in excess of 0.35% of GDP and in effect prohibits the country’s 16 regions from any deficit spending whatsoever. 

  • The measure was enshrined into law in 2009 by the grand coalition government through an amendment to the German constitution

  • The budget brake is more or less the domestic version of the stringent borrowing and spending curbs built into the EU’s SGP and the 2012 Fiscal Compact Treaty.

Legal Challenge 

  • The plaintiffs to the dispute, the opposition CDU and CSU, contended that investments in climate change and energy transition were part of the long-term financing activities of the state. 

  • These could not be funded from the emergency exemption provided in the debt brake, which was related specifically to COVID-19 relief. 

  • The government countered that the diverted money addressed the economic consequences of the pandemic, insofar as the investment shortfall could be linked to the economic impact from COVID-19.

How has Germany fared after 2009?

  • Through successive years in the last decade, Germany’s export driven economy registered impressive rates of growth and ran budget surpluses, backed by high levels of employment compared to other states in the single currency union. 

  • Businesses borrowed cheap, thanks to the European Central Bank (ECB)’s ultra-low interest rate policies

  • The government slashed net borrowing to achieve a zero-deficit budget — a scenario Berlin sold as a simple case of practising what it professed, an ideal recipe for a single currency

union reeling from a sovereign debt crisis.

  • Criticism that the biggest economy in the EU’single currency area ought to adoptexpansionary fiscal measures to cushion several countries that were reeling under a severe recession went almost unnoticed.

  • Come 2019, a cooling economy during a global downturn turned the spotlight on the cost of under-investment in infrastructure, viewed as critical to restore Germany’s competitiveness.

  • Commentators and business lobbies questioned the reticence to take advantage of the ECB’s ultra-low rates of interest and expansive bond buying programme.


  • while others pointed to higher taxation as a preferred route out of stagnant investment.

  • Angela Merkel, then Chancellor, argued that Germany, with the world’s largest number of elderly population, could not burden its shrinking young population with additional debt.

  • In 2020, the debt brake rule was suspended to raise record levels of borrowing to fund various pandemic measures and was on course to be reinstated this year. 



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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Debt Brake Rule UPSC NOTE
Debt Brake Rule UPSC NOTE
Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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