CDU/CSU and SPD agree on new special funds for infrastructure and partial reform of debt brake
Election Insights
The political debate about reforming the debt brake has reignited following the general election on 23 February 2025. In the exploratory talks to form a coalition, the party leaders of the CDU/CSU and SPD have now agreed on new borrowing for infrastructure and defence. The necessary amendments to Germany’s Basic Law (constitution), are to be passed with the parliamentary majority in the old Bundestag, to circumvent the blocking minority of the Left party and AfD in the new Bundestag.
I. Key content of the agreement
In addition to allowing the federal government to take on new debt for infrastructure and defence, the agreement also provides for the partial lifting of the ban on new debt for the individual federal states.
1. New debt for infrastructure and defence
The current constitutional provisions of the debt brake limit the annual structural new borrowing by the federal government to 0.35% of the nominal gross domestic product (GDP). Under constitutional law, this cap can only be exceeded in exceptional cases. Critics argue that the debt brake does not give the budget legislators sufficient scope for investment. They point out that particularly given Europe’s changing foreign and security policy situation, a faltering economy and the country’s dilapidated infrastructure, debt-funded investment is absolutely necessary, but is blocked by the existing constitutional restrictions on new debt. Economists estimate that the armed forces will need up to €400 billion in funding and that as much as €400-500 billion will be necessary for the federal and state governments to improve infrastructure. The SPD and CDU/CSU are therefore planning constitutional amendments to allow for new borrowing in these two areas.
a) Partial exemption from the debt brake for defence spending
In their exploratory coalition talks, the party leaders agreed that defence spending of only 1% of GDP should be represented within the scope of the debt brake. Any defence spending above that level should not be counted towards the debt brake. In concrete terms, this would mean that around €40 billion of the defence budget would still have to be shown as part of the normal federal budget for which the debt limit will still apply in future. Additional spending could be financed by borrowing without adhering to the debt limit. The planned amendment is intended to codify a general exception to the new debt limit and thus represents a partial reform of the debt brake.
If the future German government aims to achieve the NATO target of defence spending of 2% of GDP, it will need to borrow €40 billion per year for defence. Germany achieved this target for the first time in 2024 with the help of the special fund for the armed forces, launched in 2022 as Article 87a(1a) of the Basic Law. According to the CDU/CSU and SPD, the money from this special fund should now be rapidly put to use. To this end, the new federal government is to propose a planning and procurement acceleration bill for the armed forces within six months. Once the special fund for the armed forces is used up, a new exemption from the debt brake for defence spending would become particularly relevant, since defence spending is expected to be well above 2% of GDP in future.
b) Special fund for infrastructure
The second key cornerstone of the planned constitutional amendments is the introduction of a special fund for infrastructure worth €500 billion for a ten-year period. In particular, this fund is intended to facilitate investment in civil defence and civil protection, transport infrastructure, hospital infrastructure, energy infrastructure, education, social care and science infrastructure as well as research, development and digitalisation. The federal states and the municipalities are set to receive €100 billion in total from the planned special fund.
The term “special funds” (Sondervermögen) describes the government’s constitutional authority to take out new loans. Special funds exist in addition to the regular budget. As such special funds are legitimised at the level of the Basic Law, the constitutional provisions on new borrowing do not apply to them. The loans allocated to special funds are earmarked for specific purposes. However, financing infrastructure projects using money from special funds could ease the federal budget overall, thus potentially freeing up money for financing other budget items.
2. Reform of the ban on new borrowing by the federal states
In addition, a constitutional amendment to the ban on new borrowing for the federal states is planned. Currently, the first sentence of Article 109(3) of the Basic Law requires the federal states to balance their budgets without borrowing. While, according to the second sentence of Article 115(2) of the Basic Law, the federal government is considered to comply with this principle if its new structural debt stays within 0.35% of nominal GDP, there has been no such specification of the new debt rule for the federal states to date. The states are only authorised to incur new debt in crisis situations. For example, the second sentence, first case, of Article 109(3) of the Basic Law authorises borrowing to finance anticyclical budgetary policies. According to the second sentence, second case, of Article 109(3) of the Basic Law, loans can also be taken out to cope with natural disasters or other emergencies. However, there are strict limitations on these exceptions (see also our article of 27 February 2025, Part I. 2.)
According to the plans of the coalition partners in waiting, the federal states should also be allowed to take on new debt of up to 0.35% of GDP in future without contravening the ban on new borrowing.
II. Will the reform with a majority of the old Bundestag be possible legally, politically and in time?
As the Left and AfD parties have a combined share of more than a third of all votes in the new 21st Bundestag, and amendments to the Basic Law can therefore only be passed with the consent of one of the two parliamentary factions, the CDU/CSU and SPD are planning to push through the partial reform of the debt brake and the special funds with the majority of the (still) current 20th Bundestag. This is allowed under constitutional law, as the “old” Bundestag retains full rights of parliamentary representation until the newly elected Bundestag is constituted.
However, also in the 20th Bundestag, the CDU/CSU and SPD parliamentary factions combined do not have the necessary two-thirds majority. To achieve the two-thirds majority, they need the votes from the Greens or FDP factions. Those parties were not involved in the talks themselves, although their leaders were informed of the outcome. Their positions are still unclear. While the FDP has indicated it does not intend to vote in favour of the special funds in particular, the Greens could push for additional consideration of climate policy aspects in the use of the special funds.
A two-thirds majority in the upper house of parliament, the Bundesrat, is also needed to amend the Basic Law. The CDU/CSU, SPD and Greens have 41 of the 46 votes required in the Bundesrat. Approval will thus also be essential from Bavaria with the participation of the Free Voters party, or the state governments of Rhineland-Palatinate and Saxony-Anhalt with the participation of the FDP.
To carry out this plan, time is of the essence. The newly elected Bundestag will convene for its constituent session no later than 25 March 2025. The current Bundestag must have passed the necessary amendments to the Basic Law by then. According to the current timeline, a corresponding resolution by the Bundestag is scheduled for 17 March and a resolution by the Bundesrat for 21 March. However, involving the Bundesrat before the new Bundestag is constituted is not compulsory under constitutional law. The Bundesrat can deal with a legislative resolution passed by the previous Bundestag even after the end of the previous legislative period.
Accompanying and implementing laws, on the other hand, are not planned to be passed until after the new Bundestag has been constituted. A simple majority of the CDU/CSU and SPD would be sufficient for those laws.
III. Fundamental amendment to the debt brake postponed
The CDU/CSU and SPD do not intend to stop at the planned amendments to the constitution. They have also agreed in the exploratory talks that a commission of experts is to make a proposal for the further modernisation of the debt brake, to enable additional investment on a permanent basis under constitutional law. Based on the outcome of the talks, a fundamental reform of the rules on new borrowing is to be implemented by the end of 2025. This will also require the votes of the Greens and the Left in the 21st Bundestag, but negotiations are likely to be complicated. In this respect, the current proposals are a stopgap to secure the most urgent investments in infrastructure and defence in constitutional law.
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