Troubles have come to the German economy not as single spies, but in battalions. First, it was the Covid-19 pandemic. Then it was a major energy shock induced by natural gas and oil supply disruptions from the Russia-Ukraine war, followed by an abrupt slowdown in the Chinese economy, which is a major export market for German capital goods. Now Germany faces the threat of U.S. import tariffs to curb its large trade surplus.
Unlike the U.S., which responded to its Covid-induced, two-month blip of a recession with the largest peacetime budget stimulus on record, Germany has—until now—been constrained in responding to its series of shocks by its so-called debt brake. The brake is a rule established in 2009 that limits German public debt to 60% of gross domestic product, one of the conditions known as the Maastricht criteria after one of the European Union’s founding treaties. The brake has limited Germany’s budget deficit to no more than 0.35% of GDP, with exceptions in times of economic emergencies.
