Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67383
Authors: 
Truger, Achim
Will, Henner
Year of Publication: 
2012
Series/Report no.: 
Working Paper, Institute for International Political Economy Berlin 15/2012
Abstract: 
Many observers consider the German 'debt brake' beyond criticism. In the current crisis, many European countries have difficulties refinancing their budgets, while the German treasury's funding conditions are most favourable. The 'fiscal compact's' call for the introduction of German-style 'debt brakes' in the constitutions of other countries in order to rebuild their credibility on financial markets therefore might seem reasonable. However, there are several reasons to doubt the underlying (macro-) economic reasoning. Two specific problems of the German debt brake are analysed in greater detail: Firstly, the German rule is neither simple nor transparent. The calculation of structural deficits is a complex matter highly sensitive to specification and therefore open to political manipulation. Secondly, the debt brake will ultimately have a pro-cyclical effect because of the way the commonly used cyclical adjustment method works. This will, as a result, destabilise the economy. The German debt brake can therefore hardly serve as a good example for other countries.
Subjects: 
Germany
debt brake
Euro zone
Euro crisis
sovereign debt
JEL: 
H12
H39
H50
H6
Document Type: 
Working Paper

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