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43-471: The debt brake is controversial among economists. It is supported by a German strand of economics, ordoliberalism , while other economists have challenged the rule. The amendment was enacted because the nation's debt-to-GDP ratio exceeded the 60% threshold fixed in the Maastricht Treaty , primarily a result of the heavy payments to reconstruct former communist Eastern Germany after reunification and

86-529: A central bank committed to monetary stability and low inflation , and insulated from political pressure by independent status. Fiscal policy —balancing tax revenue against government expenditure —is the domain of the government, whilst macro-economic policy is the preserve of employers and trade unions ." The state should form an economic order instead of directing economic processes, and three negative examples ordoliberals used to back their theories were Nazism , Keynesianism , and Soviet socialism . It

129-521: A clash of ideas regarding the establishment of the welfare state , in comparison to the ordoliberal's idea of a social market model being open to the benefits of social welfare . Ordoliberals are also known for pursuing a minimum configuration of vital resources and progressive taxation . The ordoliberal emphasis on the privatization of public services and other public firms such as telecommunication services; wealth redistribution and minimum wage laws as regulative principles makes clear

172-567: A consultant for the global strategy consultancy Boston Consulting Group (BCG), based at the firm's Stuttgart office. Bayaz joined the Green Party in 2005. From 2013 until 2017, he was part of the party's leadership in Baden-Württemberg under co-chairs Thekla Walker and Oliver Hildenbrand. Bayaz became a member of the Bundestag in the 2017 German federal election . From 2017 until 2021, he

215-839: A loss of tax revenue during the Great Recession . The law required a change to the constitution and in 2009, it was approved with a two-thirds majority both by the Bundestag and the Bundesrat , under the Grand coalition of the First Merkel cabinet . At the federal level, the law limited the budget deficit to 0.35% of the GDP beginning in 2016 and German states that approved the law were prohibited from taking on debt after 2020. Three states, Berlin , Mecklenburg-Vorpommern and Schleswig-Holstein , did not establish

258-441: A moderate stance between socialism and capitalism , the ordoliberal social market model often combines private enterprise with government regulation to establish fair competition (although German network industries are known to have been deregulated ), whereas advocates of the third-way social democracy model have been known to oversee multiple economic deregulations . The third way social democracy model has also foreseen

301-452: A reform to raise the relatively weak level of investment, compared to European neighbors, which had prevailed for several years. On November 27, the cabinet agreed to extend the lifting of the amendment to 2023. The German debt brake has been both lauded and criticized by economists and policymakers alike. Critics argue that the debt brake constraines the government's ability to respond flexibly to economic downturns. Moreover, some contend that

344-454: Is also seen as a third way between collectivism and laissez-faire liberalism . Defunct Defunct While the ordoliberal idea of a social market is similar to that of the third-way social democracy advocated by the likes of the New Labour government (especially during the premiership of Tony Blair ), there are a few key differences. Whilst they both adhere to the idea of providing

387-529: Is central to the German approach to the European sovereign-debt crisis , which has often led to conflicts with other European countries. Danyal Bayaz Danyal Bayaz (born 15 October 1983) is a German politician of Alliance 90/The Greens who has been serving as State Minister of Finance in the government of Minister-President of Baden-Württemberg Winfried Kretschmann since May 2021. From 2017 until 2021, he

430-649: Is still published, and the Faculty of Economics at the University of Freiburg is still teaching ordoliberalism. Additionally, some institutes and foundations such as the Walter Eucken Institut and the Stiftung Ordnungspolitik are engaged in the ordoliberal tradition. Germany's Free Democratic Party (FDP) is a traditional and committed supporter of ordoliberalism, the party having been influenced by

473-526: The Wirtschaftswunder , or economic miracle. Ordoliberal theory holds that the state must create a proper legal environment for the economy and maintain a healthy level of competition through measures that adhere to market principles . This is the foundation of its legitimacy . The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly ) power will emerge, which will not only subvert

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516-400: The capitalist system , but not the " logic of contradiction " that Marx posited. Both groups took up the same problem, but in vastly different directions. The political philosophy of Ordoliberals was influenced by Aristotle , de Tocqueville , Hegel , Spengler , Mannheim , Weber , and Husserl . According to Sebastian Dullien and Ulrike Guérot , ordoliberalism

559-576: The COVID-19 pandemic to its Climate and Transformation Fund  [ de ] (KTF) for climate and green industry projects. On November 15, 2023, the Federal Constitutional Court , having been prompted by the opposition CDU/CSU conservative alliance, ruled this maneuver to be unconstitutional. The ruling prompted a discussion about whether the amendment in its current form would still be appropriate, with even some conservatives calling for

602-537: The accumulation of government debt and promotes balanced budgets. They argue that reducing government borrowing fosters economic stability, encourages private sector investment, and ultimately strengthens Germany's position within the European Union. Moreover, the CDU/CSU emphasises the importance of honouring budgetary commitments to future generations, framing the debt brake as a mechanism to safeguard their interests. At

645-415: The advantages offered by the market economy , but also possibly undermine good government, since strong economic power can be transformed into political power . According to Stephen Padgett, "a central tenet of ordo-liberalism is a clearly defined division of labor in economic management, with specific responsibilities assigned to particular institutions. Monetary policy should be the responsibility of

688-515: The application of the exception clause. Secondly, they suggest that the annual limit for the structural deficit should be contingent upon the level of debt. If the debt falls below a specified threshold, a higher structural deficit would be permissible. Lastly, the experts recommend methodological changes in estimating potential output, a crucial part of calculating the structural deficit. The debt brake has been controversial since its introduction. At that time numerous German economists spoke out against

731-429: The debt brake demonstrate their differing priorities, concerns, and approaches to managing public finances. The conservative parties, CDU/CSU have historically been a strong advocate of the debt brake. They view it as a necessary tool for maintaining fiscal discipline and ensuring the long-term sustainability of public finances. For the CDU/CSU, the debt brake represents a commitment to responsible governance, as it limits

774-428: The debt brake disproportionately impact marginalised communities and slow down efforts to achieve inclusive and sustainable economic development. The far-right party AfD (Alternative for Germany) is in favor of the debt-brake. This Germany -related article is a stub . You can help Misplaced Pages by expanding it . Ordoliberalism Ordoliberalism is the German variant of economic liberalism that emphasizes

817-436: The debt brake. Bündnis 90/Die Grünen emphasizes the need for investments in renewable energy and climate adaptation to address the looming threat of climate change. They argue that prioritising debt reduction over these priorities neglects crucial long-term investments in sustainability and economic growth. In 2024, Danyal Bayaz , Minister of Finance of Baden-Württemberg, criticized the federal German government for squandering

860-479: The debt brake. While the SPD initially supported its implementation, the party has since become divided over its effectiveness and implications. Some rather conservative factions within the SPD remain supportive of the debt brake, arguing that it promotes fiscal discipline and credibility in financial markets. However, other more left-leaning parts of the party criticize its firm framework and argue that it negatively influences

903-417: The discourse, debate and criticism of both economic schools. In 1991 political economist Michel Albert published Capitalisme Contre Capitalisme, and in 2001 Peter A. Hall and David Soskice published Varieties of Capitalism , and both separated the concepts and developed the new terms liberal market economy and coordinated market economy to distinguish neoliberalism and ordoliberalism. The theory

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946-528: The economic theories of Wilhelm Röpke and Alexander Rüstow . Historical FDP party grandee Otto Graf Lambsdorff , who served as Federal Minister of Economics , was a particular proponent of ordoliberalism. Ordoliberalism was a major influence on the economic model developed in post-war West Germany . Ordoliberalism in Germany became known as the social market economy. The Ordoliberal model implemented in Germany

989-443: The government's ability to respond effectively to economic downturns or invest in green technologies and welfare programs. These critics advocate for reforms to make the debt brake more flexible. Bündnis 90/Die Grünen has also expressed mixed views on the debt brake. While the party recognizes the importance of sustainable fiscal policy, it raises concerns about the social and environmental implications of austerity measures enforced by

1032-473: The government, led by Chancellor Olaf Scholz , succeeded in obtaining the two-thirds majority necessary to amend the debt ceiling to allow Germany to establish a 100 billion euro defense fund that would not be subject to the restrictions. The change was spurred by the 2022 Russian invasion of Ukraine . In December 2021, via an amendment to the original budget for 2021, the ruling traffic light coalition reallocated €60 billion of unused funds intended to combat

1075-521: The idea of social justice . " Social security and social justice", wrote Eucken , "are the greatest concerns of our time". Michel Foucault also notes the similarity (beyond just historical contemporaneity) between the Ordo/Freiburg school and the Frankfurt School of critical theory , due to their inheritance from Max Weber . That is, both recognise the " irrational rationality " of

1118-639: The introduction of the debt brake in a public letter. German professors remain divided about this issue. A recent report from the Ifo Institut in Munich shows that 48% of economics professors oppose a reform of the debt brake, 44% support a reform, and 6% want to abolish it all together. 2% of economists are undecided. The Schuldenbremse, or debt brake, has been a pivotal point of contention among major German political parties, displaying diverse economic perspectives on fiscal policy. The positions of these parties regarding

1161-547: The law in their constitutions. In the years prior to the Covid pandemic, the law helped reduce Germany's debt to 59.5% of GDP. The balanced budget amendment is not absolute and allows the country to exceed the borrowing limits during a national emergency or a recession. The amendment was suspended in 2020 to allow the country to deal with the costs of the COVID-19 pandemic in Germany and was set to come back into force in 2023. Although

1204-492: The links between this economic model and the social market economy . Wilhelm Röpke considered ordoliberalism to be "liberal conservatism", against capitalism in his work Civitas Humana ("A Humane Order of Society", 1944). Alexander Rüstow also criticized laissez-faire capitalism in his work Das Versagen des Wirtschaftsliberalismus ("The Failure of Economic Liberalism", 1950). The ordoliberals thus separated themselves from classical liberals and valued

1247-494: The market and which is in many ways different from the ideas connected to the term neoliberalism. The term neoliberalism was originally coined in 1938 at the Colloque Walter Lippmann by Alexander Rüstow , who is regarded as an ordoliberal today. Because of the connected history, ordoliberalism is also sometimes referred to as "German neoliberalism". This led to frequent confusion and mix-ups of terms and ideas in

1290-563: The mechanism was successful in its stated goal, reducing government borrowing, it was criticized by left-of-center parties including the Social Democrats and the Greens , which suggested that the law limited necessary government investment. During the 2021 German federal election campaign, the Greens proposed reforming the rule to allow spending on infrastructure, healthcare and education. In 2022,

1333-416: The need for government to ensure that the free market produces results close to its theoretical potential but does not advocate for a welfare state and did not advocate against one either. Ordoliberal ideals became the foundation of the creation of the post- World War II German social market economy and its attendant Wirtschaftswunder . The term "ordoliberalism" ( German : Ordoliberalismus )

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1376-458: The need to strike a balance between debt reduction and strategic investments in areas such as infrastructure, education, and innovation. Also, the FDP advocates for structural reforms aimed at enhancing Germany's economic competitiveness and productivity, viewing them as essential for achieving sustainable budgetary outcomes in the long run. The Social Democratic Party (SPD) has a nuanced relationship with

1419-561: The negotiations to form a coalition government under the leadership of Minister-President of Baden-Württemberg Winfried Kretschmann following the 2021 state elections , Bayaz was a member of the working group on economic affairs, labor and innovation. In the negotiations to form a so-called traffic light coalition of the Social Democratic Party (SPD), the Green Party and the Free Democratic Party (FDP) following

1462-450: The social market economy was implemented in economies where corporatism was already well established, so ordoliberal ideals were not as far reaching as the theory's economic founders had intended. Since the 1960s, ordoliberal influence on economics and jurisprudence has significantly diminished; however, many German economists define themselves as Ordoliberals through the present day, the ORDO

1505-514: The start of 2024 a debate has sparked within the CDU about a reform of the debt brake. Especially. some Ministerpräsidenten have recently advocated for a reform. The Free Democratic Party (FDP) generally supports the debt brake. However, with some reservations. While the FDP acknowledges the importance of fiscal responsibility, it advocates for a more flexible interpretation of the debt brake to accommodate economic fluctuations and crises. The party emphasizes

1548-472: The strict austerity measures enforced by the debt brake hinderes long-term growth prospects by causing underinvesting in infrastructure, education, and innovation. The German Council of Economic Experts (GCEE) has advocated for a pragmatic reform aimed at enhancing the flexibility of fiscal policy while safeguarding debt sustainability. Firstly, they propose spreading the process of returning the structural deficit to its regular limit over multiple years following

1591-482: The “globalisation dividend” of the past 15 years by failing to make public investment during a period of low interest rates. The Left Party (Die Linke) opposes the debt brake altogether, viewing it as a neoliberal austerity measure that undermines social welfare and intensifies inequality. Die Linke advocates for alternative approaches to fiscal policy that prioritize public investment, wealth redistribution, and social justice. They argue that austerity measures enforced by

1634-584: Was a member of the Bundestag . Bayaz was born in Heidelberg in 1983 to a German mother and a Turkish -born father. His father worked as a journalist. After graduating from Heidelberg's Bunsen Gymnasium, he studied politics and economics at the University of Hohenheim , where he later earned a doctorate in financial markets. Among other things, he completed a research stay as a Fulbright Fellow at Cornell University in New York. From 2013 to 2017 Bayaz worked as

1677-626: Was a member of the Finance Committee and an alternate member of the Budget Committee, where he served as his parliamentary group's rapporteur on the annual budgets of the Federal Ministry of Justice and Consumer Protection and the Federal Constitutional Court . On the Finance Committee, he led his group's work on the Wirecard scandal . In addition to his committee assignments, Bayaz

1720-562: Was a member of the German delegation to the Franco-German Parliamentary Assembly since 2019. Also from 2019, chaired the Business Advisory Board of the Green Party's parliamentary group. From 2019, he joined forces with Lukas Köhler on bringing together fellow parliamentarians from the Green Party and the Free Democratic Party (FDP) to explore options for a so-called Jamaica coalition government . In

1763-458: Was coined in 1950 by Hero Moeller and refers to the academic journal ORDO . Ordoliberals separate themselves from classical liberals . Notably Walter Eucken , with Franz Böhm , founder of ordoliberalism and the Freiburg School , rejected neoliberalism . Ordoliberals promoted the concept of the social market economy , which calls for a strong role for the state with respect to

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1806-408: Was developed from about 1930 to 1950 by German economists and legal scholars from the Freiburg School , such as Walter Eucken , Franz Böhm , Hans Grossmann-Doerth, and Leonhard Miksch. Ordoliberal ideals (with modifications) drove the creation of the post- World War II German social market economy. They were especially influential on forming a firm competition law in Germany. However

1849-466: Was started under the government administration of Konrad Adenauer . His government's Minister of Economics , Ludwig Erhard , was a known Ordoliberal and adherent of the Freiburg School . Under Adenauer , some, but not all, price controls were lifted, and taxes on small businesses and corporations were lowered. Furthermore, social security and pensions were increased to provide a social base income. Ordoliberals have stated that these policies led to

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