Abstract
This chapter describes the budgetary process and its link to forecasting in Germany. A substantial concern is the national debt-to-GDP ratio. This ratio was formerly restricted by a “golden rule” that excluded investment debt. However, this rule led to expanding debt because of the difficulty in drawing a clear distinction between investment and ordinary debt. There was a significant expansion of debt during the Great Recession. As part of implementing debt control under the Maastricht Treaty, all debt is counted together and subject to a debt brake in Germany. The chapter describes the debt brake, which limits the debt-to-GDP ratio, with a target below 60%. Forecasting is a critical element of achieving this limitation in the budget planning process.
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Notes
- 1.
The debt-to-GDP ratio was 72.4 percent in 2009 according to the Maastricht definition, which is different from the way in which this ratio is calculated by the German Minister of Finance.
- 2.
The latest proposal from the president of the European commission would lessen the impact of EU-wide fiscal criteria on the individual members. Instead of the state-by-state threshold described above, the threshold would be EU-wide under this proposal. This would allow individual EU members to have debt greater than the individual amount defined above provided that the threshold was met on an EU-wide basis. Because EU members are independent states, however, the president of the EU commission also called for EU-wide ministers of finance and the economy to ensure that EU-wide targets would still be met.
- 3.
It is important to note that the municipalities, although mentioned in Article 28 of the Basic Law, are never counted as being part of the “the state.” When Germany’s Law speaks about the state, it only refers to the federal level and the Länder, not the municipalities. The Länder are responsible for maintaining responsible budget behavior among their municipalities.
- 4.
This limitation is fixed differently for each member state of the EU.
- 5.
The problem is that old special funds can fulfill debit authorizations existing 31 December 2010, but not new ones. (Article 143d Basic Law: “debit authorisations existing on 31 December 2010 for special trusts already established shall remain untouched.” Taken from the English translation of the Basic Law). New means all special funds founded when the debt brake came into effect. Old means, for example, the German Railway (Deutsche Bundesbahn [DB]), which used to be a special fund of the federal government but is now a private company. The water works, wastewater works, the transport enterprises, etc. belong to the Laender-level or the municipality-level. The municipalities can organize local services independently (Article 28 (2) Basic Law).
- 6.
In Germany, the federal level only had spent in 2016 30.4 billion euros for public net investment (Source: Federal Agency for Civic Education (Bundeszentrale für politische Bildung, 2016)). “Die Bruttoinvestitionen des Staates lagen (2015) bei insgesamt 65.9 Mrd. € (5.0% aller öffentlichen Ausgaben)” (English: The gross investment of the state in 2015 was 65.9 billion euros [5 percent of all public expenditures]).
- 7.
The federal and state government must comply with the requirements of macroeconomic balance in their economic and fiscal policy measures. The measures must be taken in a way that, within a market economy, they contribute at the same time to the stability of the price level, a high level of employment, and a balance between the external environment and steady adequate economic growth.
- 8.
For example, the financial crisis that occurred in 2008.
- 9.
There is a law in effect since 1967 that focuses on four targets (law of stability and promoting economic growth). But nobody really knows what an “economic equilibrium” is.
- 10.
Established in 2010 by law (following the Financial Planning Council (Finanzplanungsrat)) concluded in 2009 by the Bundestag and the Bundesrat based on Article 109a Basic Law. According to §51 (1) HGRG (Law on Budgetary Procedures) (Grundgesetz für die Bundesrepublik Deutschland2017; Section 51—Consultation to coordinate the basic assumptions underlying budgetary and financial planning; observance of budgetary discipline within the framework of European Economic and Monetary Union: Act on the Principles of Federation and Länder Budgetary Law (Budgetary Principles Act), 1969), the Stability Council has to debate the macroeconomic and financial framework/basic data by establishing the budgets of the federal and the Länder level. It is founded by law (Artikel 249 der Verordnung vom 31. August 2015 (BGBl. I S. 1474) geändert worden ist” Stand: Zuletzt geändert durch Art. 249 V v. 31.8.2015 I 1474/Article 249 of the Ordinance of 31 August 2015 (Federal Law Gazette I p. 1474) Status: Last modified by Art. 249 V v. 31.8.2015 I 1474, 2015).
- 11.
The German problem is mostly the influence of politicians on these forecasts.
- 12.
Total budget 2017: 329.1/2018: 343.6 (billion euros) = +4.4 percent.
- 13.
The Sachverständigenrat—expert advisory board—which is popularly referred to as the “five wise men” (even though there is currently one woman on the board) is a long-standing institution, which is based on a law, “Law on the formation of an Expert Council for the Evaluation of macroeconomic development,” from 1963.
- 14.
This chapter principally discusses the forecasting environment and not forecasting methods. According to the Federal Ministry of Finance (2017), “The Working Party bases its estimates on key macroeconomic data supplied by the German federal government and coordinated between the various ministries under the aegis of the Federal Ministry of Economics and Technology.”
- 15.
This process addresses the risk of political bias in forecasting but cannot guarantee the absence of politically motivated bias.
- 16.
HGrG, Haushaltsgrundsätzegesetz.
- 17.
Although there are 16 Länder and one federal level, all of them are independent in planning their respective budgets. Municipalities are included in this sum as well.
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Busch, D., Strehl, W. (2019). Budget Preparation and Forecasting in the Federal Republic of Germany. In: Williams, D., Calabrese, T. (eds) The Palgrave Handbook of Government Budget Forecasting. Palgrave Studies in Public Debt, Spending, and Revenue. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-18195-6_4
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