Reasonable Debt

Debt is not as bad as is made out to be. Taking on debt is an important way for states to raise additional funds for public investments, for example, in infrastructure, education, digitisation, social housing or even in measures against climate change, which pay off for everyone in the long run. Moreover, by resorting to debt, the state can stabilise economic development in times of crisis and thus prevent a sharp rise in unemployment. 


Taking on debt therefore gives states additional room to manoeuvre in terms of fiscal policy, which must be used appropriately, especially against the backdrop of current and future challenges. At the same time, however, there have to be guarantees that borrowing is sustainable in the long term. Just as too little recourse to the debt instrument would be a mistake, because important public investments would then be omitted, so too would borrowing to much prove problematic.  


The sustainability of public finances, however, cannot be measured by one or a few key figures alone. Rather, a multitude of factors play a role here. Even at similar levels of debt, the answer to the question of the sustainability of government finances may differ from country to country. This is evident not merely when comparing industrialised and developing countries. Therefore, if debt regulations are too rigid and too narrowly defined, they need to be reformed, for example, at the German and European level.


Martin Güttler


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