Public debt as a constitutional problem

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On May 22nd 2012 the Konrad-Adenauer-Stiftung|Shanghai and the German – Chinese Institute of Law of Nanjing University jointly organised a workshop on the topic “Public debt as a constitutional problem”.

In the context of the workshop Prof. Dr. Dr. Di Fabio, professor for constitutional law at the University of Bonn and former judge of the German federal constitutional court, explained the provision for a debt ceiling into the German constitution. Afterwards, Prof. Tian Fang, Institute of Law of Nanjing University, gave a presentation on the development of the tax system, state income and government spending in China.

Against the background of the enormous debt currently to be found in most industrialised countries, it is important to know that the debt burden of today has not always existed. Until the 1960s, Germany was debt free, the USA had a relatively balanced budget until the end of the 90s and also Great Britain was able to achieve a balanced budget through fiscal discipline during the time of the government led by Margaret Thatcher.

With the introduction of the so called „global steering“ and an “anti-cyclical fiscal policy”, influenced through Keynesianism, Germany has been accumulating a growing amount of debt since the end of the 1960s. Only during the 1980s under the then finance minister Gerhard Stoltenberg (CDU) the development slowed down for a short period of time. In 2007 the constitutional court ruled the federal budget of 2004, which resulted in massive new debt, constitutional with only a small majority. In order to reduce further indebtedness of Germany, a tightened debt ceiling was decided upon and written into the constitution in 2009. This makes a balanced budget mandatory for the federal government until 2016 and for the 16 states until 2020. Only very few exceptions allow new debt. In line with the European Fiscal Pact, which was ratified by 25 out of 27 EU member states in March 2012, all ratifying states are obliged to also implement a balanced budget into their constitutions.

However Prof. DiFabio made clear that even a debt ceiling which is written into the constitution alone cannot guarantee fiscal discipline. In fact, this depends much more on the political culture. Only if politicians take the obligations which derive from the constitution seriously and accept the control carried out by the constitutional institutions the debt ceiling can work and a balanced budget can be guaranteed or re-established.

According to Prof. Tian, even the People’s Republic of China faces great challenges concerning the budgets of the regional and local authorities, despite a low level of official debt on the national level. Since 2009the local governments have been borrowing heavily in the context of coping with the financial and economic crisis and implementing measures for reviving the economy, especially infrastructure projects. Their revenues are heavily dependent on charging administrative fees and selling of land usage rights. This frequently leads to conflicts with the local population and often hinders sustainable land usage and urban planning.

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China, May 22, 2012

Prof. Dr. Dr. DiFabio Nanjing

Prof. Dr. Dr. Di Fabio, professor for constitutional law at the University of Bonn and former judge of the German federal constitutional court, presenting on the governement debt in Germany and the EU.

Prof. Tian Fang Nanjing

Prof. Tian Fang, Institute of Law of Nanjing University, talking about the debt of regional and local authorities in China.

Hefele, DiFabio, Zinser Nanjing

From left to right: Dr. Hefele, director KAS | Shanghai; Dr. Zinser, deputy director German – Chinese Institute of Law; Prof. Dr. Dr. Di Fabio, professor for constitutional law at the University of Bonn and former judge of the German federal constitutional court.

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Tim Wenniges