Germany’s New Constitutional Rules on Public Debt: An Analysis of Debt Sustainability and Intergenerational Fairness

Abstract

This article analyzes the new exceptions to the previous debt rule (Articles 109 and 115 of the German Basic Law) with regard to the normative principles of (debt) sustainability and intergenerational fairness. Sustainability requires that the current level of debt be backed by the present value of future primary surpluses, while intergenerational fairness requires that the amount of net borrowing is limited by the amount of net investment (golden rule of investment). We examine and evaluate the defense exception, the special fund (SF) Infrastructure and Climate Protection as well as the additional deficit leeway for the German states with regard to their justification and design on the basis of these standards. We also take a brief look at possible multiplier effects and inflationary effects. Finally, from an EU perspective, we take a look at the planned European rearmament program ReArm Europe.