National indebtedness / Political economy

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The national indebtedness designates the total claims of the credit-giving creditors accepted by the state to the state. For example in Germany the summarized debts of federation, countries, municipalities, legal social security and special estate. The national indebtedness is regarded usually net thereby, i.e. the commitments of the state opposite private ones are decreased by the demands of the state opposite private ones.

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Terms

With the debts of a state one differentiates internal debts, i.e. national debt with respect to own currency, and external debts, that is the indebtedness in foreign currency.

The height and the meaning of public indebtedness can be measured on the basis a whole set of characteristic numbers:

1.) Debt conditions and net borrowing (first is an inventory size, the latter the pertinent current size): According to data of the federation of the taxpayers the current debt conditions of the state amount to 1418 billion euro (January 2005), correspond to 65.9% of the gross domestic product (to the comparison: 1960 was it still 18.5%) and approx. 17,200 " per head. A continuous net borrowing and/or net new indebtedness (thus the difference between the public expenditures and the public revenues) faces that: 2001 were it in the federation about 154 billion ". Since 1962 it came with exception of 1989 in each year to a net new indebtedness of the federation; only in the period of 1950 to 1961 a net repayment of the federal debt was possible in eight years. The federation of the taxpayers calculated that the total indebtedness of the state of the Federal Republic rises at present around approx. 1714 " per second (January 2005). That means that the financial resources of the private ones, as far as they are the counterpart of the national indebtedness increase likewise per second by approx. 1714 " per second. The private ones can be thereby residents or foreigners.

2.) Explicit indebtedness and implicit indebtedness: Apart from this today already explicitly available indebtedness, which from the state States of confirmed by a document in all rule (Federal loans, - government notes, municipal bonds etc.) results, one speaks also of the implicit indebtedness (English: implicit debt; in the policy and the media also "e.g. hid" debts) from the height of the future national obligations, like pension and pension payments, results. The computation of of the implicit indebtedness is controversially discussed, there it among other things by acceptance the height those which can be estimated of the payment stream (cash-flow), as well as acceptance over (future) the interest structure depends. A change of the social security systems or the population distribution would have for example direct effects on the future payment stream and thus on the present value (the today's value) of the future payment stream. For this reason the published numbers refer to the uniformly determinable explicit indebtedness. In the framework suggestions exist to the discussion over a larger lastingness in public finances to integrate the implicit indebtedness into a generation balance.

3.) Interest charge ratio: According to the increasing debt conditions the interest charges grew. The interest charge ratio (expenditures for interest in % of the total expenditure) was for the federation in the year 2001 about 16,2%; in some Lands of the Federal Republic still clearly over it.

Between 1965 and 2002 the sum of the expenditures for interest exceeded the sum of the new indebtedness. The new indebtedness did not thus even cover the expenditures for interest. This of the Federal Bank as "vicious circle of debt dynamics" designated problem already to a debt mountain led, which can be cleared away only with difficulty again. Even with (under today's conditions unrealistic) annual a repayment of 13 billion euro this would not be possible in 100 years. This problem applies also to many other European and non-European states such as Japan and the USA. Thus Professor Reimut Jochimsen, director of state central bank von Nordrhein-Westfalen explained, 1999: "For the whole of the eleven EWU countries it applies that the new indebtedness straight was sufficient to cover the interest charge from the indebtedness. In the period 1970 to 1998 was practically just as high the deficit ratio with 3,57 per cent GROS DOMESTIC PRODUCT as the interest charge ratio with 3,63 per cent."

Borders of the national indebtedness

Natural borders

National debt in own currency can be taken up theoretically in unlimited height. However the emission of national debt titles for a state already which was to blame for becomes usually extremely difficult, since the financial markets judge a repayment of the taken up debts for very doubtful (soil quality) and liquid means only too much to the state either no more or high interest will thus offer. The indebted state slips in such a way into a vicious circle from ever higher financial obligations (interest and repayment of debts already existing) and an entrance to the financial market, ever more limited. This spiral can end with the loss of the credit-worthiness or with the inability to pay of the State of (national bankruptcy).

Legal delimitations

The German state may not make debts for an unlimited period. According to kind a parliament reservation and a contentwise delimitation (the credits may not exceed the sum of the investments) exist 115 GG. In addition the following had to be fulfilled by 1992 specified European Union convergence criteria, in the Maastricht contract among other things before the introduction of the euro:

The budgetary deficit may amount to maximally 3.0 per cent GROS DOMESTIC PRODUCT.
The total indebtedness may not exceed 60.0 per cent GROS DOMESTIC PRODUCT.

The countries participating in the euro committed themselves to keep the same criteria in the context of stability and growth pact also after the euro-introduction.

These as Maastricht criteria designated borders were not set arbitrarily and on the part of Germany and also different countries since 2002 any more are not kept. The 60-Prozent-Grenze represented at the time of the Maastricht negotiations (1991) the average debt ratios of the entry candidates at that time. One subordinated thereby an average nominal growth of the national products of approximately five per cent, i.e. three per cent material growth and two per cent of inflation. Afterwards the net borrowing might be only with 60 per cent of the national product increase (thus three per cent), if equal the debt conditions should remain.

Economical meaning

The evaluation of the national indebtedness is controversial in the restaurant sciences: While David Ricardo it leaves itself as "one of the most terrible scourges, which were ever invented for troubles nation" marked, from keynesianischer view an intensified indebtedness temporarly for the "setting in motion" of the economic growth in motion to justify.