Germany | Lifting the fiscal handbrake is easier said than done

Recent political shifts have increased the odds of Germany loosening its tight national fiscal rules after the September elections, which could be good news given the drag from secular stagnation and the investment needed for the green and digital transitions. But we see significant obstacles that could delay or even weaken the economic impact, even if such a shift was agreed.

What you will learn:

• A wholesale revision of the constitutional public debt brake as favoured by the Green party still looks highly improbable, as we think the fiscally hawkish CDU or FDP will either be part of the government or retain a blocking minority in the legislative. Even the SPD isn’t advocating for an overhaul of the debt brake.
• Several proposals to tweak or circumvent Germany’s fiscal rules have been developed, which could generate sizeable fiscal space of up to 1%-2% of GDP annually.
•  Should a proposal succeed and the resulting fiscal space be primarily used for investment, we think supply bottlenecks would slow deployment.