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Why Germany is considering punishing future generations by taking on more debt | DW News

Mar 30, 2024

more

than 25 trillion euros, that is the sum of the German

debt

at the moment and what if it were not enough? Is Germany

taking

on too little

debt

? This is a debate that is going on in this country right now, some sectors are crying out for cash, the military, the country. Mediocre digital infrastructure Railways Did I mention climate change? Meanwhile, the economy struggles to compete. Now calls are growing to abolish or modify the strict debt rules engraved in the country's Constitution, but fans of those rules are not backing down, they say that accumulating debt is a burden on

future

generations

, so what exactly is the problem? of Germany's debt?
why germany is considering punishing future generations by taking on more debt dw news
First of all, Germany has a lot of debt in real terms, at least even when you look at debt relative to the size of the economy, and that's really the standard comparison between In some countries, it's not among the lowest and Germany has spent a fair amount of credit over the last few years, in fact, proudly, so let's go back to the pandemic, the finance minister at the time, a guy named Olaf Schultz was bragging about his country's financial firepower, literally said. he was unleashing a bazooka to help save homes, but then what country didn't go into debt during the pandemic?
why germany is considering punishing future generations by taking on more debt dw news

More Interesting Facts About,

why germany is considering punishing future generations by taking on more debt dw news...

That crisis is now over, but other crises have begun or worsened. A war inflation. A costly climate transition. And that former Minister of Finance who now heads. of the country the chancellor but that bazooka is nowhere to be seen Germany now says that its budget for this year will return to stricter spending rules those rules limit the deficit in any budget year to just over 3/10 percent of GDP and that makes Germany an outlier Italy plans a new budget deficit of around 4% France has roughly the same deal, both are countries that tend to run deficits, but even the Netherlands is expected to be a fiscal hawk within the EU and a country that has recently aimed for balanced budgets. run deficits for the next few years citing rising social spending and critics say that Germany should not be afraid of running deficits, especially when the country's needs are so high, but first we will look at their arguments in a moment why it is so important for Germany a Balanced Budget You may wonder why it wouldn't be from our own personal finances, we know that we can't spend

more

than we have, at least on a consistent basis.
why germany is considering punishing future generations by taking on more debt dw news
National budgets are different from household budgets, of course, but we also know that there are many governments overwhelmed by debt, the more debt you have, the more of your income you spend to pay it off, leaving less room in your budget for other priorities above and debt has become more expensive because interest rates have risen, so the more a government borrows, the more expensive you have to remember that Germany is in a pretty good position, its debt relative to the size of its economy is about below the EU average, which makes borrowing money cheaper because the risk of Germany defaulting on payments is clearly lower than that of countries with huge amounts of debt, which also leaves

future

governments and Taxpayers have less to pay, so the thinking goes, but more than just fiscal prudence is at stake here, keeping debt low has become something of a political mantra in Germany, critics would say it is too often not questioned, it could be point to German history for a possible reason why German debts after World War I, as dictated in the Versa treaty, were enormous and created anger and anxiety because the country did not pay reparations, fueling political uncertainty .
why germany is considering punishing future generations by taking on more debt dw news
Fun fact: Germany finally paid off its final World War I debt in 2010. More than 90 years after the crisis, other crises reinforced Germany's desire to keep its financial affairs in order, such as the Great Recession of 2008, which forced countries to accumulate their debt burdens. Deficits soared across the EU as revenues fell and spending increased, leading to the euro crisis, which shed new light on the financial health of European countries EU members finally agreed to tighten guidelines about annual deficits and debts, but few of them actually took those goals seriously. Germany, however, was very serious: it wanted to control the growing debt in the EU, but also at home.
By 2010, total federal debt had reached 82% of the country's GDP, which is almost 18 percentage points higher than before the recession. Meanwhile, the German states had their own debt problems, so Berlin encouraged fiscal discipline at the national level and, beyond its own borders, now saves the euro. It needed stronger medicine, massive bailouts, but at home that message of discipline and fiscal discipline resonated. The German parliament changed the constitution in 2009 to essentially require balanced budgets at both the federal and state levels. There were exceptions to this rule which we will address. at one point, but Germany didn't need them right away, in fact in the first two budgets after the new debt rule came into effect Berlin had balanced budgets and then had surpluses the economy was booming the borrowing rates were quite lows at the time, but many finance ministers savor the art of saying no to new deficit spending Ang americle praised the symbol of the suian Housewives a mythical southern German who maintains strict control of her portfolio the schwat the black zero the symbol of a balanced budget became a kind of seal of fiscal prudence for state and federal governments and debt breakdown In the end it worked as planned, the debt fell faster in Germany than in the rest of the EU and then The pandemic came again, everyone went into debt during the pandemic, Germany included and, in fact, the debt breakdown also allowed with a special emergency provision the real question was what would come next.
It is important to note that not everyone loved debt relief when the German Parliament was debating it. Some economists frankly found it to be a mistake. National economies are different from a real home that governments can choose. investing money to make long-term improvements that will pay off over time can stimulate business, increasing overall economic activity and improving well-being, could be bridges, could be schools, could be climate infrastructure, in fact a vocal number from economists and politicians Political leaders emerged from the Great Recession with a completely different view than German leaders: governments needed to spend more, not less.
An example was Portugal. It scrapped austerity measures in 2015 and boosted its economy by spending more. Finally, many critics say that the German debt was never even realistic to begin with, but for many of these critics the post-pandemic situation in Germany has only strengthened the arguments for spending more inflation and the war in Ukraine put households and companies in difficult positions. Germany was becoming less attractive for new investment, especially as the United States and China spent heavily, for example, on industrial subsidies. Forecasters say German growth will be disappointing until 2028 without intervention and could even lag behind comparable economies and The lack of German investment in recent years suddenly became evident in schools and education, where infrastructure was deteriorating. and the profession was becoming less attractive, in the digital infrastructure where Germany was struggling to implement the most modern internet connections and in its own military, as observers had warned. for years was without sufficient funding to address some of those needs is almost impossible to imagine without

taking

on considerable new debt, according to one study, almost €400 billion in new mobility infrastructure is needed by 2030, i.e. bridges, roads , rails, even broken down over several years, is a huge Now Berlin took on new debt to equip its military, but as finances became tighter, the new government attempted a budget trick of sorts: it tried to redirect the debt incurred for the corona pandemic to already planned expenses were about 60 billion euros, a court finally struck it down, so the government resorted to budget cuts, but it is that the right decision for an economy that is doing badly if Germany goes into debt to fill its budget hole if it reassesses its general attitude towards debt Given the shape of its economy and the lag in investments, the debt break is back in effect for 2024 and there is already a hole in finances for the coming years.
Budget cuts are not easy - in fact, the removal of a popular diesel subsidy led to a massive series of farmer protests earlier this year - but the Finance Minister is betting that Germans still want strict fiscal discipline and , in a way, doesn't seem to be wrong; In fact, polls show that a majority of Germans oppose the abolition of debt relief. Meanwhile, experts are divided A survey of nearly 200 economists found that about half wanted debt relief to remain as is, while the other half want to reform it or abolish it entirely. Another group, the German council of economic experts that advises the government, has called for reforms, for example there could be a transition period out of an emergency phase like the pandemic or that the permitted amount of deficit spending could be linked to the amount general outstanding debt;
In other words, a lower debt burden would allow for larger deficits. Meanwhile, businesses say they want more help from the overall government for investment. Investments that, according to some experts, are unlikely without a relaxation of debt relief. One thing is clear: Germany's approach to debt is quite unique for a major economy. Debt levels have soared in recent years in the United States, China, Japan and Germany stand out in the EU, where many countries will continue deficit spending in the coming years. Some like the Netherlands, moving away from recent practices, can Germany, with its aging population and investment lags, really stick to its goals? budget rule is realistic something we will keep an eye on thanks for watching

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