MNI BRIEF: Germany Need More Debt Brake Reform - Bundesbank

Germany’s fiscal rules should be changed to ensure thE March reforms that facilitated short-term borrowing for defence and infrastructure investment do not lead to a deterioration of the public finance over the longer-term, or continue to be incompatible with EU rules, the country’s central bank said in a discussion paper published on Tuesday.

Over the next decade, German fiscal policy and the debt brake -- which governs how much governments can borrow as a proportion of GDP -- should be aligned in three stages, the Bundesbank said:

Until 2029, loans should be focused on major defense and infrastructure needs, with high fiscal deficits possible, adding that deficits should then be reduced between 2030-2035, using the EU’s 60% debt ratio rule as an anchor, at a rate of around 0.5 percentage pointer per year.

From 2036 the debt brake is seen stabilising the scope for government investment and ensure sound public finances and consistent fiscal policy. The target value for a sound budgetary position is defined as a structural deficit ratio of 1% or 1.5% of GDP.