A future German government, with the support of parts of the old government, plans to amend the Basic Law to allow for a large-scale accumulation of debt.
There is a lot to be noted, but one thing not: “intergenerational justice”. The debt accumulation does not burden future generations. This argument, also used by Merz in the election campaign, is foolish. Debts always stand against assets, from an economic perspective, the total sum is always zero and the question of justice arises from how this zero-sum game is distributed within the society. Who bears the burden and who reaps the benefits? It looks bleak in Germany, as the inequality grows and the wealth is extremely unequally distributed. This will not change even with the de facto abolition of the debt brake, if the political will for redistribution is lacking. The will has been missing for decades.
In fact, the entire argumentation for justifying the debt brake is built on sand. It is simply and tragically wrong from an economic perspective. The debt brake in the Basic Law cannot generate growth, as it prevents investments. The past decade has provided insight into this. Germany is now lagging behind in many areas, as it has been content with saving instead of investing. Investments, however, are nothing but debt. The answer to the question of whether debts are sustainable for an economy plays by other indicators than the absolute amount or the ratio to GDP. Whether the interest can be serviced, for example and what is done with the money. Is it given away to Ukraine, or does it generate no economic growth in the country? This idea is economically senseless and even the majority of arms purchases abroad would not be particularly bright.
One of the criticisms of the Modern Monetary Theory, which shows that government debts are not the problem they are commonly believed to be, is that their argument can also be used to finance armaments and wars. Exactly that is happening in Germany now.
Merz is making an economic policy turn and is becoming a modern Keynesian, but not for the good, but to go to war. And yes, the plan is working. With the investments, growth can be generated. With the de facto abolition of the debt brake, the pressing economic problems of Germany can be alleviated.
Critics of the austerity course, for which the CDU stands more than any other party, have been demanding this for a long time. The problem of high energy prices remains, but with the shift to a war economy, jobs are created, demand grows and the economy grows. That is the economic perspective. It is a shame that not a collapsing bridge and a dilapidated school building has led Merz to a change of heart, but the propagandistic and unproven assertion that Russia is about to invade EU countries.
There are, however, other points that need to be mentioned. Merz and the CDU are causing massive damage to democracy and the credibility of politics. Merz is clearly betraying the voters. They voted for him and the CDU because of the promise to stem investments from the current budget. A bit of bureaucratic reform, a bit of tax cuts and suddenly the German economy is running smoothly again, was the statement of Merz in the election campaign.
The belief that Germany’s economic problems can be solved in this way is economically nonsensical, but it would have been fair if Merz had explained this to the voters before the election. A significant part would then have probably not voted for the CDU, but for the AfD or the FDP, who believe in this nonsense, namely that large-scale investments can be generated through bureaucratic reform. This makes it clear that Merz has deceived the voters solely to prevent the AfD from winning and he wants to arm Germany massively and seek confrontation with Russia. At a large part of the CDU voters, he would have failed with this program. He has therefore deliberately deceived them.
However, there are still some hurdles in the way of the plans of the not-so-large coalition for militarizing Germany.
Although the EU Commission also wants to abolish the EU’s debt rules, it is uncertain whether this will succeed. The EU states must agree and their agreement is by no means secured. The virus of war-mania has not yet spread to all EU countries. Although Germany will not, as in the case of the financial crisis, prevent the relaxation of the debt rules, resistance will come from a different direction. Hungary and Slovakia will not support the war in Ukraine.