Welcome to the Eurointelligence podcast. I'm Wolfgang Munchau and with me, I'm Zasanne Monsenk and Jack Smith.

Today we will talk about the deadbreak, the big event of the last few days, or the former deadbreak, as we shall say.

It's not been deleted yet. They still have to vote for it in the Bundestag. It's a big reform. The

debt break was created 16 years ago

to put an additional constraint on German fiscal policy. It was a vehicle to deliver austerity.

Germany for most years had zero deficits. It has by far the lowest rate of debt in GDP of all the big member states in Europe as a result of it.

But it became increasingly unsustainable.

Political majorities have now been found to undo it.

And we've been saying this for a long time.

We were strong opponents to the debt break.

I remember I wrote in

2009 that it would be the end of the euro area. It was perhaps slightly exaggerated, but it

certainly gave rise to the euro crisis. It made it worse. And it required massive corrective action,

including an ECB. It was not a sustainable rule for the euro area. It was not a sustainable

rule for Germany. And now a two-thirds

majority in the outgoing German parliament has been found to modify this. What does it contain?

It's probably worse just looking at the agreement that the various German parties struck on Friday.

The two main planks of this reform is that all defence spending above 1% of GDP

will be exempted from the fiscal rules. The Greens wanted to raise that threshold to 1.5%, which is

approximately where they're at now. The idea is it makes no sense to law, it is just to give the government

space for more slush fund type spending.

The Greens did not prevail on this particular one, but they prevailed on the other thing.

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