Germany’s Bundesbank proposed a reform of the country’s debt brake, allowing Berlin to borrow an additional €220 billion by 2030, a break from its traditional austere stance.
Citing a draft of the central bank, news portal Table.Briefings reported on March 4 that it supports extra borrowing if the debt ratio stays below 60 per cent.
It proposed an increase of borrowing from the currently constitutionally enshrined 0.35 per cent to 1.4 per cent of gross domestic product (GDP).
These extra debts should be used for a growth-oriented fiscal policy.
If the debt ratio would exceed 60 per cent, the debt brake would be activated again.
The proposal outlines a “stability-oriented path for higher government investment,” Table.Briefings quotes from the draft text. It suggests that 0.9 per cent of GDP should be allocated exclusively for investments. The Bundesbank’s Executive Board is set to approve the draft on March 4.
According to the report, with a debt ratio exceeding 60 per cent, only €100 billion in new debt is to be taken on by 2030. The EU Commission’s autumn forecast from November 2024 projects Germany’s national debt at 63.2 per cent this year and 62.8 per cent next year.
Under the debt brake, the German federal government currently only is permitted to take on fresh loans of up to 0.35 per cent of economic output per year.
Having the Bundesbank pushing for a reform of the debt brake is a major shift from its past stance, since it long has been seen as the guardian of strict financial rules and the separation of monetary and fiscal policy.
President Joachim Nagel, a member of the Socialist Party and supporter of a more flexible debt regulation, reportedly has broad backing on the board, with all members except Liberal representative Michael Theurer in favour.
It remains unclear whether a reform of the debt brake or new special funds will be the preferred solution for Germany’s investment plans.
The Greens have called upon CDU leader Friedrich Merz to reform the debt brake instead of more special funds, stressing that creating special funds only serves to temporarily bypass the debt brake.
The Christian Democratic Union (CDU) and Socialist Party (SPD) are reportedly discussing two special funds totalling up to €900 billion for the German army and for infrastructure, with talks on financing set to begin by March 10.
Reforming the debt brake or expanding special funds requires a two-thirds majority in both the Bundestag and Bundesrat, as it involves a constitutional amendment. This means the government must secure support from either the right-wing Alternative for Germany (AfD) or the left-wing Die Linke, as together they hold a blocking minority.
The German debt brake, which limits structural deficits, allows suspension during ‘natural disasters or extraordinary emergencies beyond state control.’ This clause was activated from 2020 to 2022—first to address the COVID-19 pandemic, then to counter the economic fallout from Russia’s invasion of Ukraine and the ensuing energy crisis. A simple Bundestag majority can trigger such an exemption.
Germany’s national bank has reported record losses of €19.2 billion, marking its first deficit since 1979. https://t.co/oPHlAhh6bB
— Brussels Signal (@brusselssignal) February 25, 2025
