Economist Lars Feld also assumes that the constitutional amendment envisaged in Rhineland-Palatinate to alleviate debts to local authorities violates the Basic Law.
Feld is economic advisor to the Federal Minister of Finance Christian Lindner (FDP) and was previously chairman of the Federal Government’s Council of Experts. Feld told the SWR that the debt brake in the Basic Law basically prohibits states from taking on new structural debt. But if Rhineland-Palatinate were to borrow around three billion euros from municipalities, this would entail new debts for the state.
The fact that Rhineland-Palatinate therefore wants to change the constitution is therefore an avoidance of the debt brake and violates the Basic Law. The economist sees the danger of a domino effect and other federal states could follow Rhineland-Palatinate’s example. Feld warns that this would undermine the idea of a long-term debt brake.
The state should seek compensation from municipalities for debt cancellation
Furthermore, the famous economist believes that the kind of debt relief expected in Rhineland-Palatinate is halfway through. According to Feld, it is not enough to take half of the municipal loans of around six billion euros. The state must also demand something in return from the municipalities, such as the condition that the cities, districts and municipalities must return the remaining three billion euros within a certain period of time. Otherwise there is a risk that the municipalities will continue to borrow.
Expert: Hesse Example of constitutional regulation
Feld cites the state of Hesse as an example of legally compliant debt cancellation. There, in the summer of 2018, the cash advances of the over-indebted municipalities were, to put it simply, packed into a single pot. The state of Hesse and its municipalities have been paying off this debt pool together for several decades. The assumption was that the municipalities had to present balanced budgets starting from 2019.
With this type of debt cancellation, the state of Hesse has shown responsibility to its municipalities and not left them alone to pay off the debt, but at the same time received something in return, according to Feld. Because even the municipalities should participate in the repayment of the debt.
Municipal representatives and other experts also see a violation of the law
Public finance scientist Feld of the University of Freiburg is not alone in criticizing the planned constitutional amendment in Rhineland-Palatinate to take over municipal loans. The managing director of the German District Association, Hans-Günter Henneke, also sees the pitch as a breach of the debt brake in the Basic Law, just like the Court of Auditors, the taxpayers’ association and numerous finance experts such as the Prof. Hanno Kube and Prof. Ekkehart Reimer of the University of Heidelberg. Constitutional lawyer Christoph Gröpl of the University of Saarland told SWR that the planned constitutional amendment in Rhineland-Palatinate is “another nail in the coffin” for the debt brake.
Constitutional lawyer Kyrill-Alexander Schwarz of the University of Würzburg told SWR that the assumption of municipal debt does not fall under any of the exceptions for the debt brake in the Basic Law. Apparently even the state government is aware of this. That is why he is now planning to amend the constitution to define that the debts taken on should not be new debts. This is a “sleight of hand”.
Financial scientist Thiess Büttner of the University of Erlangen-Nuremberg calls the project “fiscal political hocus-pocus”. Büttner announced on Twitter:
Büttner told the SWR that the federal and state governments had agreed on the debt brake to stop the steady rise in debt. But if politicians no longer abide by their own rules, as they are doing now with the planned debt assumption in Rhineland-Palatinate, politics will lose credibility. This is a dangerous development, according to Büttner.