German Debt Issues
If you visit Berlin's government district, you might notice an unusual landmark: the debt clock. Operated by the Bund der Steuerzahler, or the "Taxpayers' Association", this digital counter tracks Germany's national debt in real-time.
Beyond this clock, Germany has a unique fiscal policy, the Schuldenbremse, or "debt brake". Written in the German constitution, this policy limits how much new debt the federal and state governments can incur each year.
While I find this policy concerning, many German economists apparently do not. Although Germany is not a private business and does not face strict budget constraints or have the power to influence economic conditions or interest rates, it has nonetheless imposed these limitations on itself. With the debt brake, the country has, in some ways, forgone economic opportunities over the last fifteen years.
I.
The debt brake discourages government borrowing, limiting spending for public infrastructure projects. Consequently, infrastructure has deteriorated over the past fifteen years. So, people who could maintain public infrastructure were out of jobs or transitioned to other opportunities. Even if the government decides to invest heavily to catch up, the workforce needed for such an undertaking is no longer be sufficient.
II.
The Schuldenbremse has also led to a shortage of German government bonds. Demand for these bonds has grown so high that interest rates have turned negative, with investors effectively paying Germany to take their money. Not capitalizing on this demand and borrowing at negative rates, Germany missed an opportunity for virtually free capital. Had the government chosen to issue bonds and invest in a diversified global portfolio, as Norway has done, it could have generated returns that might have further stabilized the economy.
I'm curious to watch the debt debate in the following years, as it's obvious that this rigid fiscal policy is not sustainable. On the other hand, they managed to make this rule constitutional and any change will mostly likely involve the parliamentary opposition.