Bell for the “status” of funding defense The famous German economist and president of IFO, Clemens Fuest, speaking to Newsit.gr, on the occasion of the adoption of the constitutional reform of debt in the debt in the debt in the Germany with the aim of increasing defense spending.
And this is because -according to the pisto- In the medium term defense should be funded by tax revenue rather than loans, because defense spending, unlike infrastructure investments, will not lead to higher state revenue in the future with which German debt will be served..
Obviously, the same impasse can occur in other European countries, which seek to increase its defense spending on borrowing in the near future, commenting on newsit.gr.
At the same time, Fuest estimates that the constitutional reform of the debt brake is “covered” by the forthcoming activation of the national escape clause, provided by the White Paper of the Commission on Defense, but does not adopt the same view of the 500 -euro infrastructure fund.
More specifically, Professor Fist’s answers to newsit.gr questions are as follows:
The new Constitutional Debt Brake Provision provides: “Loans that will be taken into account is deducted the amount in which defensive costs (…) exceed 1 percent in relation to the nominal gross domestic product.” Can you explain what this means in practice to prepare the next German national budgets?
The federal budget is currently planning defense spending of € 53 billion for 2025. One percent of German GDP is around € 43 billion.
Therefore, the federal government can borrow 10 billion euros, which could be spent for any purpose.
Also, an unlimited debt can be made if the money is spent on equipment. In addition, however, it should be noted that the Constitution provides for a new special debt of € 500 billion for infrastructure investment.
What is the relationship of the new constitutional provision for debt brake in Germany and the existing stability pact?
There is no direct connection. The new constitutional rule does not change the fact that the European Stability Pact and its fiscal rules also apply to Germany.
In the past, however, many European countries have repeatedly violated the rules, including Germany. This had almost no consistency.
If Germany violates the rules again, Brussels will not be able to prevent it. However, other states may then adhere to the rules even less than before.
The stability of public finances in the eurozone is becoming increasingly weaker.
What is the relationship between the new constitutional debt brake in Germany and the activation of national escape rhetoric proposed by the Commission?
If Germany takes more debt to increase defense spending, it will violate European rules without an exemption clause. With this escape clause, the European Commission wants to prevent any conflict on this issue. At the same time, European states should be encouraged to spend more money on defense.
In the medium term, however, the defense should be funded by tax revenue, because defense spending, unlike infrastructure investment, will not lead to higher state revenue in the future with which debt will be served.