EU Commission introduces a novel growth plan for the Union.
The German debt brake reform, agreed upon by the Bundestag and Bundesrat in March 2025, allows for significant new borrowing for infrastructure, climate, and defense spending beyond previous limits. The reform includes a EUR 500 billion special fund over 12 years, with allocations for infrastructure, climate, and state-level projects.
The constitutional debt limit of 0.35% of GDP no longer applies to defense spending above 1% of GDP, and federal states have gained increased fiscal autonomy to borrow up to 0.35% of their GDP for targeted investments. The Bundestag passed the debt brake amendment on March 18, 2025, with subsequent approval by the Bundesrat on March 21, fulfilling the two-thirds majority requirement for constitutional changes.
However, the full rollout and utilization of the new borrowing powers for infrastructure and climate investments are ongoing and expected to develop through 2025-2026 as budgets are finalized and funds are deployed. The parliament still needs to approve the detailed government budgets for 2025 and 2026 that specify fund allocations.
The reform of the debt brake involves a comprehensive reform, requiring a constitutional amendment. The coalition contract includes a point titled "Reform Schuldenbremse," which outlines plans for an expert commission to develop a proposal for modernizing the debt brake, with the intention of permanently enabling additional investments. Steffen Bilger, Parliamentary Business Manager of the Union faction, stated that it is not agreed that the Union needs to speak with the Left or find a majority with them.
The decision regarding the reform of the debt brake ultimately lies with the Bundestag and its members. The Union faction has not agreed upon the procedure for achieving results in the Bundestag regarding the reform of the debt brake. The primary objective of the expert commission is to develop a proposal for modernizing the debt brake. The coalition aims to complete the legislation for the debt brake reform by the end of 2025, as stated in the coalition contract.
The expected timeline for the debt brake reform is as follows:
- The key constitutional reform was passed in March 2025.
- Implementation now depends on parliamentary approval of detailed budget plans, expected to be debated and finalized through 2025 and into 2026.
Some states like Berlin are already increasing borrowing under the new framework for 2026-2027, but there is ongoing criticism over the focus and funding levels for climate-related investments in the draft budgets. The debate over these budgets is ongoing, and the finalization of the budgets is expected to take place through 2025 and into 2026.
References:
- Bundesregierung
- Bundesministerium der Finanzen
- Financial Times
- Reuters
- Deutsche Welle
The proposed debt brake reform, as outlined in the coalition contract's "Reform Schuldenbremse" point, includes a modernization of the debt brake, with the intention of enabling additional investments in areas such as policy-and-legislation like infrastructure, climate, and defense. The Bundestag's approval of the detailed government budgets for 2025 and 2026 is crucial for the full utilization of the new borrowing powers and the allocation of funds in these areas (policy-and-legislation).
The ongoing debate and finalization of the budgets are expected to develop throughout 2025 and into 2026, with some states like Berlin already increasing borrowing under the new framework for 2026-2027. However, there is ongoing criticism over the focus and funding levels for climate-related investments in the draft budgets, which continues to be a significant topic in politics, particularly general-news.
