Eurozone stability is under threat due to Berlin’s military spending boost and debt brake overhaul, Alice Weidel warns
Berlin’s move to overhaul its national debt rules in order to boost military spending has jeopardized the economic stability of the euro area, according to Alice Weidel, the co-leader of the Alternative for Germany (AfD) party. Her comments came shortly after the federal legislature approved the measure.
On Tuesday, the Bundestag backed an initiative allowing the federal government to unlock a record level of state borrowing for defense and infrastructure. The fiscal package was approved by 513 legislators, while 207 voted against it.
“This is a death blow for the euro, which in the coming years – and it is already beginning to do so – will devalue significantly,” Weidel told journalists after the “historic” vote, emphasizing that German lawmakers had approved “gigantic debt.”
The reform, which amends the nation’s constitutionally enshrined fiscal rules, will hit the country’s future generations the hardest, according to AfD’s co-leader, who also warned that “what is being done here is the final destruction of Germany’s financial stability.”
“We will lose our AAA rating, our top credit rating,” Weidel warned.
The world’s major credit agencies currently rank Germany’s long-term sovereign debt AAA, entailing the lowest expectation of risk.
The reform package approved by the lower chamber implies the removal of federal fiscal restrictions in order to increase the special fund for the Bundeswehr, Germany’s armed forces.
If adopted, the amendments will allow spending exceeding 1% of the country’s gross domestic product (GDP) to be effectively exempt from the nation’s “debt brake” that was added to the constitution in 2009. The current rules normally limit federal budget deficits to no more than 0.35% of GDP.
In addition, the proposed reform stipulates the creation of a debt-financed and brake-exempted fund of €500 billion ($548 billion) earmarked for infrastructure and climate investments, with one-fifth of that funding to be committed to fighting climate change.
The reform package also needs to be approved by the Bundesrat, a body representing the country’s states, on Friday to become enshrined in Germany’s constitution.
