The trend is ominous: mountains of debt are growing to ever new heights worldwide. The financial burden is increasing rapidly, which is restricting the scope for budgetary policy. Year after year, countries such as Japan and the USA have to place new debt securities amounting to more than 30% of gross domestic product (GDP) on the bond markets. This is because, in addition to running deficits, they also have to refinance more and more maturing bonds. Their dependence on interest rate movements and market conditions is growing rapidly, posing a threat to their competititiveness.

As an excuse, people point to the major crises of recent years, such as corona, war and inflation. However, it should not be forgotten that the central banks established a zero interest rate regime during these times. They took government securities onto their own balance sheets, which provided enormous relief to markets. In addition, high inflation has automatically been causing some of the debt burden to melt away. A return to more solid public finances should therefore have been long overdue, especially as higher interest rates are now beginning to have a painful effect.

Compared to the major debtor countries such as the USA, Japan, Italy, France and - most recently - China, Germany is still doing quite well. The German debt ratio of around 60% looks like the grade of the top of the class. In view of this, the debate about compliance with the debt brake seems like a non-event. So why all the fuss?

This is also a question of game theory. Would it be wise to forgo higher levels of debt if everyone else knows no limits, and is pushing ahead with the modernisation of their business locations? Germany would then be among the saints in the midst of sinners, but would be stuck with rotten infrastructure and analogue technologies. It would be unattractive for investment, and the establishment of new growth sectors such as Artificial Intelligence. Such a situation makes even a relatively low level of debt unsustainable.

However, the low level of debt is deceptive anyway. Financial sustainability must also take future expenditure or revenue shortfalls into account. And this is where things look bleak for Germany. There are huge pension and long-term care insurance obligations looming, and the economy is likely to suffer from persistently weak growth for many years to come, due to demographic factors. The implicit national debt, in other words that which is not yet reported, is more likely to be over 160% of GDP than 60%.

What should be done? Save even more? Of course, more investment is also possible under the existing debt brake, provided that consumption-related social spending is massively reduced. But only economic theorists and ideologues still believe in such a restructuring. In this respect, a plan is needed to keep the debt dynamic in check, while at the same time freeing up the funds for necessary investment. This will then increase the overall growth potential, and make future burdens more bearable.

And it is possible that the current phase is also the last in which Germany can allow itself such financial liberation, because this country is still in a relatively good position in the international environment. However, it must be ensured that the money actually flows into investment. This speaks against abolishing the debt brake, but for concerted action by the government and the opposition to create a one-off facility. A constitutionally secure special fund for climate, infrastructure and defence, with several hundred billion euros, and clearly defined goals, must be launched. This is the only way to catch up on the necessary investments, tackle modernisation, and increase growth potential. And, of course, everything must be done to turn the „potential“ into real growth. The current ideological criticism of growth by the SPD and the Greens must therefore be a thing of the past. Only growth can keep debt in check.