Bundesbank presents three-step plan for reform of debt brake - Bundesbank Unveils Bold Three-Stage Plan to Reform Germany’s Debt Brake by 2036
The Bundesbank has proposed a comprehensive three-stage plan to reform Germany's debt brake, aiming to balance fiscal discipline with investment needs. The plan, which follows recurring criticism of the current debt rule, is set to maintain relaxed rules for defense and infrastructure spending until 2029.
The plan, designed to take effect by 2036, introduces a variable borrowing margin tied to debt levels. This margin varies depending on whether debt is below or above 60% of GDP. From 2030 to 2035, the plan gradually reduces deficits to align with EU standards, with defense expenditures financed without new borrowing.
A special off-budget fund, backed by up to €500 billion in credit, has been established and is exempt from the debt brake. This fund allows for additional capital investments, with a fixed borrowing allowance of 0.8% of GDP, regardless of the debt-to-GDP ratio. The 2023 budget, prepared by the Ministry of Finance under Federal Minister Christian Lindner, includes proposals for new borrowing rules for 2036, suggesting revisions to allow cyclical flexibility and increase investment capacity.
The Bundesbank's plan aims to safeguard sound public finances, comply with EU regulations, and enable steady fiscal policy. It addresses the outgoing center-left coalition government's significant borrowing plans for defense, infrastructure, and climate protection, providing a structured approach to managing Germany's debt.
