Breaking with Orthodoxy? German Fiscal Policy in the Shadow of Covid-19

ABSTRACT

The Covid pandemic confronted the Merkel IV government with unprecedented fiscal challenges. We argue that the government’s response to these challenges constitutes a break with established patterns of German fiscal policy orthodoxy in at least three areas. First, the government suspended the debt brake and gave up the ‘Schwarze Null’ without much debate. Second, it implemented a fiscal rescue package that struck a new balance between the interests of the export and the domestic sector. Third, the government supported a coordinated fiscal response on the European level thereby giving way to debt pooling across EU member states. The article traces the groundwork for these changes that was laid in the first two years of the government and then compares the German fiscal response to Covid-19 with German policy during the Financial Crisis. We conclude by discussing whether Germany has shifted to a new fiscal policy regime.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 Its December 2021, Scholz was just appointed chancellor and Omicron has entered the Covid arena.

Additional information

Notes on contributors

Laura Seelkopf

Laura Seelkopf is professor for international comparative public policy at the University of Munich. Her research focuses on tax and social policy worldwide and historically.

Lukas Haffert

Lukas Haffert is senior researcher in comparative political economy at the University of Zurich. In his research, he studies institutional change in the political economies of advanced welfare states.