German Bundestag approves exemption from the debt brake for defence spending and special funds for investments in infrastructure and climate protection
Election Insights
On Tuesday, 18 March 2025, the 20th Bundestag approved several amendments to the Basic Law (Grundgesetz – GG) that will enable the federal and state governments to incur several hundred billion euros in new debt. The original bill (see our article of 6 March 2025 regarding the content of the original bill) introduced into the Bundestag by the SPD and CDU/CSU parliamentary groups underwent significant amendments following negotiations with the the Greens parliamentary group. The agreement was necessary because the SPD and CDU/CSU parties in the 20th Bundestag only achieved the required two-thirds majority for Basic Law amendments with the support of the Green Party.
Specifically, the agreement included an extended exemption from the debt brake (see A.), a special fund for additional investments in infrastructure and climate protection (see B.) and the extension of the structural component of the debt brake to the federal states (see C.). Finally, other motions for injunctions to provisionally prohibit state governments in the Bundesrat and the Bundesrat itself from consenting to the amendments to the Basic Law adopted by the 20th Bundestag were rejected (see D.). The Bundesrat approved the amendments to the Basic Law on 21 March 2025 (see E.).
A. Extension of the area exemption in Articles 109(3) and 115(2) of the Basic Law
The adopted amendments to the Basic Law include an extended exemption from the debt brake provisions.
The original draft bill included an exemption from the debt brake provisions for defence spending (for details on previous constitutional requirements for permissible government debt, see our article of 27 February 2025). In the future, only defence spending up to 1% of gross domestic product (“GDP”) will be subject to the debt brake. On the other hand, any additional defence expenditure will not count towards the limit. Consequently, approximately €40 billion of defence spending would still be included in the normal budget subject to the debt limit.
In negotiations with CDU/CSU and SPD leaders, the Green Party succeeded in significantly extending the exemption. Beyond defence spending, it now covers federal expenditures on civil defence and protection, intelligence services, IT system security and aid for states attacked in violation of international law. The adopted sectoral exemption now reflects a more comprehensive security policy concept. This approach is based on the assumption that external security depends not only on national and alliance defence capabilities but also on cyber defence and intelligence operations. Additionally, aid for Ukraine, which was illegally attacked by Russia, is partially exempt from debt brake requirements.
However, the Green Party failed to secure their more ambitious proposal to apply the defence spending exemption only above 1.5% of GDP.
B. Special fund also for achieving climate neutrality
The special fund planned by the CDU/CSU and SPD has undergone the most significant changes. Initially, the parliamentary groups’ joint bill envisioned a €500 billion special fund for infrastructure investments over 10 years.
Following agreement with the Green Party, the adopted Article 143h(1), sentence 1 of the Basic Law stipulates that loans from the special fund will be taken out for additional investments in infrastructure and for additional investments to achieve climate neutrality by 2045. A key provision ensures these investments are truly additional. According to the future Article 143h(1), sentence 2 of the Basic Law, additionality is met if an appropriate investment ratio is achieved in the relevant federal budget. This is to ensure that planned investments are not reallocated from the federal budget and integrated into the special fund in order to increase the scope for consumptive expenditure elsewhere. In a motion for a resolution also adopted by the Bundestag, the appropriate investment ratio was specified. Accordingly, the total share of investments budgeted in a given financial year must exceed 10 per cent of federal budget expenditure, excluding the special fund and financial transactions. The financing for the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz) is to remain in the core budget.
Finally, it was also decided to include the objective of achieving climate neutrality by 2045 in the wording of Article 143h(1), sentence 1 of the Basic Law, as amended. Specifically, Article 143h(1), sentence 5 allocates €100 billion from the special fund to the Climate and Transformation Fund. The concept of climate neutrality by 2045 aligns with the national climate protection target already established in section 3(2), sentence 1 of the Federal Climate Protection Act (Bundes-Klimaschutzgesetz). However, this new provision in the Basic Law does not mean that this specific climate protection target has now been incorporated into the Basic Law as a state objective, nor does it constitutionally oblige the state to achieve this specific goal. The constitution-amending Bundestag merely intended, according to the prevailing opinion of legal scholars, to ensure that borrowing for the purpose of investments in climate protection also falls under the special fund. A normative requirement for the state to reduce greenhouse gases thus continues to arise only from the general state objective of protecting the natural foundations of life under Article 20a of the Basic Law.
Contrary to the original plan, the special fund will now have a term of twelve years.
C. No changes to the original draft bill regarding amendments to the Basic Law affecting the federal states
The draft bill introduced by the SPD and CDU/CSU parliamentary groups has not been amended with regard to the new provisions concerning the federal states. Under the provisions of the Basic Law now adopted by the Bundestag, the federal states will receive €100 billion from the special fund to finance investments in their infrastructure (Article 143h(2), sentence 1 of the Basic Law). The earmarking of the special fund has not been extended to include investments by the federal states in climate protection projects.
In addition, the structural component of the debt brake will be extended to the federal states. In the future, they will be permitted to collectively take on debt amounting to 0.35 percent of GDP without violating the ban on new borrowing. The specific implementation details must be regulated in federal law by the new Bundestag (Article 109(3); sentences 6 and 7 of the Basic Law, as amended). Only then will it become clear how the permissible volume of debt will be distributed among the federal states.
D. Legal efforts against resolution by the 20th Bundestag unsuccessful
The vote in the 20th Bundestag was preceded by a legal dispute about the constitutional admissibility of the “old” Bundestag adopting amendments to the Basic Law after a new election had been held and before the new parliament had been constituted. Numerous petitioners attempted to prevent the 20thBundestag from voting on the constitutional amendments through constitutional organ dispute proceedings (Organstreitverfahren) and requests for temporary injunctions at the Federal Constitutional Court. However, these legal challenges were unsuccessful. In the main proceedings, some decisions are still pending (detailed in our report of 18 March 2025).
The FDP state parliamentary groups in Hesse, North Rhine-Westphalia, Baden-Württemberg, Mecklenburg-Western Pomerania and Bremen recently tried unsuccessfully to have the approval of their respective state governments to the new version of Article 109(3) of the Basic Law in the Bundesrat provisionally prohibited in temporary injunctive proceedings before the respective state constitutional courts.
The motions for injunctions of all FDP parliamentary groups have since been rejected by the relevant state constitutional courts (VerfGH21/25, LVerfG 5/25 e.A., 1 GR 17/25, P.St 2995, St 1/25).
For example, the North Rhine-Westphalian FDP state parliamentary group argued that the amendment of Article 109(3) of the Basic Law was tantamount to an amendment of the NRW State Constitution (Landesverfassung Nordrhein-Westfalen ‒ LV NRW) without the involvement of the state parliament. In its view, the state government should therefore not approve the constitutional amendment.
The Constitutional Court (Verfassungsgerichtshof) for the State of North Rhine-Westphalia justified its rejection of the motion for a temporary injunction (Constitutional Court decision 21/25) on two grounds: first, the Constitutional Court found that the motion filed in the main proceedings, which aimed to establish that the state government of North Rhine-Westphalia would violate the state parliament’s right under Article 69 of the NRW State Constitution to participate in amending the NRW State Constitution and its constitutional obligation to the state parliament by consenting in the Bundesrat to the Bundestag’s amendment of Article 109(3) of the Basic Law, was inadmissible. Second, the Constitutional Court determined that the FDP state parliamentary group was not authorised to file a motion in a dispute between constitutional organs. Furthermore, in the opinion of the Constitutional Court, the NRW State Constitution did not contain any provisions on the debt brake that could be directly amended by the new version of Article 109(3) of the Basic Law. Rather, the more detailed implementation in NRW of the budgetary rules for federal states, as provided for in Article 109(3), sentence 5 of the Basic Law, was not included in the NRW State Constitution, but was incorporated in an ordinary, non-constitutional law, namely the State Budget Code (Landeshaushaltsordnung ‒ LHO) (see sections 18 ‒ 18h of the State Budget Code).
In addition, the Federal Constitutional Court rejected a further motion by the AfD parliamentary group and members of the 20th Bundestag for a temporary injunction (2 BvE 10/25 - Alt Bundestag VII - eA II). The petitioners requested the Federal Constitutional Court to issue a temporary injunction prohibiting the Bundesrat from approving amendments to the Basic Law for as long as the dispute between constitutional organs (2 BvE 10/25) had not been decided in the main proceedings. The petitioners argued that without a temporary injunction, there was a risk that they would prevail in the main proceedings, while the (in the petitioners’ view) formally unconstitutional law would remain in force, resulting in a “ghost law”. The AfD parliamentary group also argued that the law, which it considered to be formally unconstitutional, would have a binding effect if it were passed. The infringements of rights asserted in the motion initiating the dispute resolution proceedings between constitutional organs would also be “irrevocably perpetuated”.
The Federal Constitutional Court found, however, that determining whether the AfD parliamentary group’s rights were violated in the dispute between constitutional organs was reserved for the main proceedings. The Federal Constitutional Court stated that it had not yet ruled on whether violations of members’ rights during parliamentary legislative processes would also render any resulting law formally unconstitutional. Moreover, according to the Federal Constitutional Court, the entry into force of a law that was (in the opinion of the petitioners) formally unconstitutional did not constitute a serious disadvantage that the Court would have to prevent by way of a temporary injunction. The Federal Constitutional Court emphasised that, based on the principle of separation of powers and the explicit allocation of competences in the Basic Law, its legal remedies were designed to address violations retrospectively, after a law had come into effect. It considered a “preventive review of laws” fundamentally alien to the Basic Law.
E. Bundesrat approval ensued; possible further reform of the debt brake later this year
Following the adoption of the amendments to the Basic Law by the German Bundestag, the Bundesrat still had to approve the bill. A qualified majority of two thirds of the votes in the Bundesrat is required for amendments to the Basic Law under Article 79(2) of the Basic Law. The state governments formed by the CDU/CSU, SPD and Greens together hold only 41 of the 46 votes required for this in the Bundesrat. However, Bavaria, which is governed by the CSU together with the Free Voters, and the federal states of Mecklenburg-Western Pomerania and Bremen, which are co-governed by the Left Party, also voted in favour of the amendments to the Basic Law. This comfortably gave the bill the required qualified majority of 53 votes. The adopted amendments to the Basic Law must now be countersigned and executed by the Federal President and subsequently promulgated in the Federal Law Gazette (Article 82(1), sentence 1 of the Basic Law). In accordance with Article 2 of the draft bill, these amendments to the Basic Law will then enter into force on the day after promulgation.
It is possible that these amendments to the Basic Law will not be the final changes to constitutional budgetary law this year. In its motion for a resolution, the 20th Bundestag urged the Federal Government of the 21st electoral term to establish a commission of experts, involving parliament and the federal states, to develop a proposal for modernising the debt brake that would “enable permanent additional investment in strengthening our country”. The legislative process based on this process is expected to be completed by the end of 2025.
This article is published as part of our Election Insights. All Election Insights and more information on the election and its impact on industry and the economy can be found on our Election Hub (here).
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