The financial needs of Germany push for changes to the constitutionally guaranteed ‘brake of debt“But that’s not easy. Will the next government do it? Many ambitious plans have been canceled due to lack of money. This also applies to the outgoing three -party government of Germany, which included Social Democrats (SPD), Greens and Liberals (FDP). The first two parties wanted to fill the gap by new lending, something that the liberals reject, opposing cuts in social spending. The three parties’ disagreements led to a collapse of the government coalition in November 2024.

That is why there is not even a budget for 2025. The training and adoption of the new budget is top priorities for the next Berlin government that, as they all show, will form the Christian Union parties (CDU/CSU) with the Social Democrats. However, the differences of opinions on public finances remain.

What is “debt brake”?

As defined in the German Constitution (Article 115), the state cannot spend (much) more money than it has already received. The so -called “debt brake” sets strict limits on the new lending, as it predicts that it is not allowed to exceed 0.35% of the gross national product (GDP). Exceptions are only foreseen in emergencies, such as a natural disaster or a deep financial crisis.

However, tax revenue is no longer enough to cover costs when the state is facing more and more needs. There are now many additional billions to finance increasing defense spending, Ukraine support measures, public projects to modernize critical infrastructure, ecological transformation and digitization of the economy.

Unlike other political parties, the Christian Union basically wants to maintain the “debt brake”. “How much more do we want if we increase our country’s borrowing? I think we are responsible for our children who will be called upon to repay the debts, ”the head of the Christian Democrats said during the election campaign. Friedrich Mertz.

In 2024 the tax revenue revenue of the central government reached 440 billion euros. Taking into account the corresponding Local Government receipts, there is a total amount of 960 billion euros, which can only be enough, says Friedrich Mertz. If not, he stresses, “we need to set some priorities in the new budget, because we obviously will not be able to satisfy all our desires.”

‘Greater flexibility’ in debt

The Christian Democrats prioritize the reduction of state subsidies and cuts in social spending. They believe that the reduction in social benefits will restore more than today’s labor market beneficiaries and the economic growth it entails will stimulate tax revenue in turn. However, in its latest annual forecasts, the federal government estimates that for 2025 the growth index will not exceed 0.3%, while in 2026 it will reach 1.1%. These estimates are not expected to improve very soon.

That is why the Social Democrats, the Greens, the Unions, but also many local governments, as well as financial institutes in Germany, had already proposed during the pre -election period to relax the “debt brake” in order to facilitate the necessary public and private investment. “In the US, public debt exceeds 120% of GDP, while in Germany it is reduced, with the prospect of reaching 60%,” said outgoing Chancellor Odf Saltz. At the same time, he recalled that other economically powerful countries, such as Italy, France, Great Britain, Japan and Canada, have public debt exceeding 100% of GDP.

Increasing Defense Expenditure on the Horizon

Defense spending is a factor that is increasingly burdened with the state budget. Following the fall of the wall, Germany’s defense budget had been constantly shrinking. Consequently, in 2014, when NATO member states agreed to increase their defense spending to 2% of GDP, Germany was far from fulfilling the target.

Following the Russian invasion of Ukraine in February 2022, the Federal Parliament approved a special fund for the modernization of the armed forces of 100 billion euros, an amount raised by emergency borrowing. Thus, for 2024 defensive costs reached the 52 billion budget of the regular budget plus an additional 20 proceedings from the Special Fund. By 2027 the fund will be exhausted, but the needs will increase. NATO already speaks of 3% of GDP instead of the original 2%.

Amendment of the Constitution?

According to the German Statistical Service, in 2024 the country’s total GDP amounted to 4.3 trillion euros. A 2% for defense spending would mean 86 billion euros, while 3% would be around 150 billion. These amounts seem difficult, considering that the entire state budget does not exceed 474 billion.

A modification of the Constitution to relax the “debt brake” is not an easy task. The Liberal Party may not be represented in the new House, but Christian Democrats, Social Democrats and Greens do not have the necessary majority of 2/3 required to revise the Constitution.

Theoretically they could count on the support of the AfD or the Left Party (Die Linke). But the AfD has made it clear that the “debt brake” wants to be maintained, and the Left says it may be opposed to the “debt brake”, but will not consent to a revision of the Constitution if the aim of fiscal relaxation is to fund equipment.

The majority wants fiscal relaxation

In the coming days, the winner of the election, the Christian Democrat Friedrich Mertz, will talk with representatives of the outgoing Parliament parties. He has, however, stated that “in the near future is excluded” a reform in the debt brake. One possible alternative would be to set up a new Special Fund, but it would also require a 2/3 majority in the Federal Parliament.

For many years, a relaxation on the “debt brake” found most Germans opposed. But it seems that things have changed. According to a recent poll by the Forsa Institute on behalf of the German Foreign Policy Society (DGAP), 55% said the “debt brake” should be modified or even completely abolished.

Curated by: Yiannis Papadimitriou