Germany central bank on Monday backed raising a cap on the government’s deficit at a time when public debt is low and there is a need for investment in infrastructure and defence.
This so called debt brake, which limits public deficits to 0.35% of gross domestic product, was the key economic topic of Germany’s election campaign and the country’s likely next chancellor, Friedrich Merz, has talked about reforming it.
The Bundesbank, traditionally a bastion of conservative economic thinking, also saw scope for adapting the debt brake “to changing conditions”, it said in its monthly report.
“Binding fiscal rules such as the debt brake make a very important contribution to ensuring solid state finances,” it said. “In principle, however, it is entirely justifiable to adapt the debt brake’s borrowing limit to changing conditions when the public debt ratio is low.”
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