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Economics and the Constitution

While the German government has received some criticism for dragging its feet when it comes to facilitating stimulus packages aimed at kick-starting its ailing economy, the changes proposed earlier this week by Chancellor Merkel are interesting. The governing “grand coalition” has proposed to change the German constitution to secure that future German governments do not run up deficits of more than 0.5 per cent of GDP as well as securing that recently created debt (earlier this week the German government unveiled its second stimulus package worth around  €49.25 billion) is paid off swiftly. The amendments are, in the words of Merkel, needed in order to remain “credible vis-à-vis future generations”.  

It is clear that the German Chancellor and the government have a clear interest in remaining fiscally prudent. However, it might be questioned whether these matters are at all appropriate in a constitutional setting of lex suprema. Often a constitution is considered to lay down the legal foundations for the governance of a country as well as the basic rights and duties of citizens and the authorities. Generally, and arguably because of this, constitutions are made deliberately difficult to amend making them less prone than ordinary law to political tinkering and populist undermining. Thus, detailed fiscal, economic and budgetary issues are usually not dealt with in constitutions. However, the German constitution is already rich on such provisions. In fact, the German constitution already holds a provision limiting federal borrowing. At the same time, it can be argued that the placing of such provisions in a constitutional setting serves to highlight the importance attached to these issues – something which does not seem out of order given the current economic climate. Furthermore, a constitution is often seen as reflecting issues which are deemed important in that particular national/domestic setting. Thus, having constitutional provisions on fiscal and financial issues, further highlights the German interest in keeping tabs on federal borrowing and avoiding large deficits. Given the importance of the German economy to Europe in general this is perhaps not such a bad idea. Finally, given the persisting rumors that the British government is not entirely ruling out the printing of extra money to make capital available as a tool in the fight against recession, some might see the “constitutionalisation” of fiscal policy as a sound bulwark against the irresponsible policy of future politicians.

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