Germany abolishes debt brake—€500 billion cost sparks fiscal crisis fears
Germany’s debt brake has been scrapped after the February 2025 federal election. The move followed intense negotiations between coalition partners and federal states, costing taxpayers €500 billion. Critics argue the suspension has weakened trust in how new borrowing is managed. The outgoing Bundestag first suspended the debt brake by amending the Basic Law. This required a two-thirds majority, secured with support from the Green Party. Three days later, on March 21, 2025, the Bundesrat approved the change after a second emergency session.
Meanwhile, the European Commission funded NGEU projects with €380 billion in credit during early 2025. These EU loans, however, demand higher contributions from member states, adding further strain to national budgets.
The new coalition—comprising the CDU, CSU, and SPD—officially abolished the debt brake to form a government. But the financial consequences are already clear. A reduced hospitality tax alone will drain public funds by €4 to €5 billion each year. Rising interest rates, now above 3%, leave little space for long-term investments.
Local governments are also under pressure. Municipal deficits have surpassed €30 billion, forcing states to confront deepening financial shortfalls. The debt brake’s removal has unlocked borrowing but at a steep cost. With interest payments climbing and EU loan conditions tightening, Germany’s fiscal flexibility remains limited. The coming years will test how the government balances spending demands against mounting debt.
