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Germany’s Debt Brake
 (cont.)
●
Control and Correction:
Deviations, either positive or negative, from the permissible
borrowing amount that arise during budget implementation are not simply forgotten
about: they are booked to a standing “control account” which must be balanced over
time. (Deviations arising from unanticipated cyclical changes are not so booked: it is
assumed instead that these issues will be covered through re-calculated automatic
stabilisers.) Redemption of the control account is required once it reaches 1% of GDP;
however, to limit pro-cyclical effects, redemption may be deferred during a downturn,
and is in any event capped at 0.35% of GDP even during an upturn. 
●
Limited exceptions:
Additional borrowing is allowed to deal with natural disasters
and exceptional emergencies beyond state control, and with severe consequences for
the public finances. A majority of 
Bundestag
members must ratify any such decision,
along with an amortisation plan to repay the borrowings “within an appropriate time
period”.
●
Transitional arrangements:
Since the debt brake became effective in 2011, in the midst
of the global financial crisis, additional borrowing latitude is allowed, but this must be
phased out (i.e. the 0.35% limit for the federal government becomes fully effective) from
2016. For the 
Länder
, the ban on structural borrowing will be fully effective from 2020
onwards.

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BUDGET REVIEW: GERMANY
OECD JOURNAL ON BUDGETING – VOLUME 2014/2 © OECD 2015
31
2.2. Co-ordination of budgetary policy across levels of government
Article 109 of the Basic Law establishes that “the Federation and the 
Länder
shall be
autonomous of one another in the management of their respective budgets”, but adds that
they shall perform jointly the obligations of the Federal Republic of Germany resulting from
the corrective arm of the Stability and Growth Pact. To complete the picture, the
approximately 13 000 municipalities (local authorities), which in functional terms are part
of the 
Länder
, nevertheless have a right to local self-governance under Section 18 of the
Basic Law, a right that has implications for budgetary management.
To reconcile the principles of autonomy and joint responsibility, the 2009 package of
reforms established a new national framework for co-ordinating fiscal policy across the
government as a whole. In particular, the Stability Council Act (
Stabilitätsratsgesetz
)
established the Stability Council as a new body bringing together the finance ministers of
the federal government and each of the 
Länder
governments, along with the federal
minister of economics. The Stability Council replaced the previous Financial Planning
Council which had been established as part of a package of budgetary reforms in 1969, and
which had been strengthened in 2002 in light of the provisions of the SGP (as those
provisions stood at the time).
4
The Stability Council meets twice-yearly,
5
 and is tasked with
monitoring the budgets of each of the government entities on a regular basis, and
implementing a “budgetary rehabilitation” procedure where a “budgetary emergency” is
in prospect.
For mutual surveillance purposes, the Council itself agrees on a set of budgetary
indicators, forecasts and threshold values which act as warning signals (see Box 2.4 below).
A budgetary report including these indicators is produced annually for consideration by
the Council, and a full review may be initiated where the indicators show the danger of a
budgetary emergency, or where the government entity itself so requests. The review
determines whether the entity is in fact “threatened with a budgetary emergency”.
If such a status is found, the Council must agree a budget rehabilitation procedure
with the entity. Like the budgetary correction procedure that applies under the SGP, the
rehabilitation procedure is multi-annual in character (five years as a rule), and it includes
proposals for annual reductions in net borrowing. Unlike its SGP counterpart, the
rehabilitation procedure has no direct enforcement mechanism: it is a matter for each
government entity to implement the procedure “on its own responsibility” and it simply
reports progress to the Council every six months. In the event of non-compliance, the
Council has no powers other than to call for enhanced rehabilitation or to agree a new
procedure.
Box 6.