Germany's Conservatives and SPD Agree on Debt Brake Reform Proposal

Germany's conservatives and the Social Democratic Party (SPD) have agreed to explore a reform of the country's debt brake, a move that could significantly impact the nation's fiscal policy and economic growth. The debt brake, introduced in 2009, limits government borrowing to 0.35% of GDP annually, with exceptions allowed during national emergencies. However, some economists and political leaders have called for a more flexible approach to address underinvestment in key areas such as infrastructure, education, and defense.

The proposed reform, backed by the Bundesbank, suggests increasing the government's scope for borrowing to a maximum of 1.4% of GDP if debt is below 60% of GDP. This would allow for an additional €220 billion in investment by 2030, which could be used to address the structural problems and underinvestment in key areas that have been holding the country back (Council of Independent Experts, 2025).

Friedrich Merz, the leader of the center-right Christian Democratic Union (CDU), has indicated openness to reforming the debt brake, but only for specific purposes such as investment in infrastructure and defense. He is not open to increasing spending on consumption or welfare. The Bundesbank's proposal aligns with the conservatives' platform, which emphasizes economic stability, investment in infrastructure, and a strong defense. It also reflects their concern about the need to beef up defense spending, especially after the United States said it would pause military aid to Ukraine.

The SPD, as part of the outgoing government, has been more open to loosening the debt brake to fund investments and social programs. They have supported the use of special funds for increased military spending and infrastructure upgrades. The SPD's platform emphasizes social justice, investment in education, infrastructure, and climate action. They have been more open to increasing public spending to achieve these goals, which would require reforming the debt brake.

The proposed debt brake reform addresses the concerns of economists and political leaders regarding underinvestment in key areas like infrastructure, education, and defense by increasing the government's scope for borrowing and investing. The Bundesbank's proposal suggests that an increase in borrowing could lead to an additional €220 billion in investment by 2030 if the debt ratio is below 60% (Reuters, 2025).

The potential economic and political consequences of the proposed debt brake reform are significant. In the short term, it could stimulate economic growth through increased investment, but it could also introduce uncertainty. In the long term, it could lead to improved infrastructure and defense, but it is crucial to ensure fiscal sustainability. Politically, the reform could influence coalition negotiations, as parties may use it as a bargaining chip to secure their preferred policies. For instance, the SPD and Greens may push for a more generous reform to fund their ambitious climate and social policies, while the CDU/CSU and FDP may be more cautious about loosening the debt brake.

In conclusion, the proposed debt brake reform could have both positive and negative economic and political consequences for Germany. In the short term, it could stimulate economic growth through increased investment, but it could also introduce uncertainty. In the long term, it could lead to improved infrastructure and defense, but it is crucial to ensure fiscal sustainability. Politically, the reform could influence coalition negotiations, as parties may use it as a bargaining chip to secure their preferred policies. Ultimately, the success of the reform will depend on how well it balances these various factors and addresses the specific challenges facing Germany.