Greift die neue Schuldenbremse?

The new German budget rule represents a shift from a public-investment-based debt cap to a requirement for a roughly balanced budget. It contains three main elements: The principle of a budget »close-to-balance« (new debt in the federal budget is not to exceed 0,35 % of GNP, Länder budgets must be balanced), supplemented by a floating debt cap mirroring the fiscal effects of the business cycle and a deficit option in case of emergency. Although the new rule follows the model of the European Stability and Growth Pact, the German deficit constraints differ from EU rules in two ways: First, the definition of German budget deficit does not encompass all categories of public debt that are included in the EU model. Secondly, German budget acts may be subject to scrutiny by the Supreme Court, thus limiting lawmakers' discretion to a larger degree than is the case with the European provisions, which mostly leave the consequences of a breach of deficit constraints to the discretion of the European Council and Commission. The new debt cap's dependence on solid econometric data may turn out to be its Achilles' heel. In spite of some remaining loopholes for »creative« budget policy, there is a good chance the new budget rule will prove much more effective in terms of consolidating the budget than its predecessor.