New majority in the German Bundestag could make “debt brake” reform more difficult

The constitutional provisions on permissible government debt (known as the “debt brake”) have been the subject of legal and political controversy for some time. The debate about its reform has reignited following the Bundestag elections. A constitutional amendment is required for this reform. However, in the newly elected Bundestag, the votes of the CDU/CSU, SPD and Alliance 90/The Greens are insufficient due to the blocking minority held by the AfD and the Left Party. Consequently, the possibility of implementing the debt brake reform in the short-term, using the majority of the (still) current 20th Bundestag, is now being considered. The details of this are set out below:

I. Constitutional provisions on new federal borrowing and room for manoeuvre from the current legal perspective

The debt brake was introduced in 2009 through amendments to Articles 109 and 115 of the Basic Law (Grundgesetz ‒ GG). The aim of the authors of this constitutional amendment was to limit the state’s structural new borrowing.

1. Limiting structural new borrowing: the core of the “debt brake”

The debt brake has both structural and cyclical components. Structural new borrowing is referred to as new borrowing that is independent of the economic cycle. Limiting this structural new borrowing is the centrepiece of the constitutional set of rules. According to Article 109(3), sentence 1 of the Basic Law, budgets of the federal government and the federal states should be balanced without revenue from borrowing.

As for the federal budget, Article 115(2), sentence 2 of the Basic Law specifies that this principle is considered fulfilled if the revenue from new borrowing does not exceed 0.35% of nominal gross domestic product (GDP). Within this limit, new federal debt is permissible even in normal budgetary situations.

2. Existing exceptions to the debt brake

Current constitutional law allows for exceeding the upper limit of the debt brake in certain situations.

On the one hand, Article 115(2), sentence 3 of the Basic Law enables an anti-cyclical budgetary policy. During economic downturns, the federal government can take out new loans without being bound by the usual borrowing limit (cyclical component). However, constitutional law requires this new debt to be fully offset by repayment during the next economic recovery period.

A second exception is codified in Article 115(2), sentence 6 of the Basic Law. In cases of natural disasters or extraordinary emergencies beyond state control that significantly affect state finances, the debt ceiling may be exceeded through a Bundestag resolution passed by a majority of its members. However, this exception is subject to certain constitutional restrictions in terms of both its conditions and legal consequences. According to the Federal Constitutional Court’s judgment on the 2021 Second Supplementary Budget Act, there must be a causal link between the emergency situation and the exceeding of the credit ceilings. Furthermore, long-term structural crises, such as ongoing climate change, cannot be legally classified as extraordinary emergencies under constitutional law.

As a result, based on its current design, the upper limit of the debt brake can only be exceeded in exceptional cases.

II. The debt brake as a “brake on investment”?

The current constitutional provisions on new borrowing are controversial in terms of legal policy. Supporters of the debt brake emphasise that it promotes financial intergenerational fairness by preventing the current Bundestag from pursuing indefinite credit-financed political projects that shift financial burdens to future generations. They contend that necessary investments can still be implemented by setting appropriate priorities when drawing up the budget, while adhering to the new debt limit or utilising existing exceptions. On the other hand, critics point to the substantial future investments required in areas such as infrastructure and defence, which they argue cannot be financed under the current debt brake provisions. They view this lack of investment as a burden for future generations.

The handling of the debt brake has sparked high-level political debates. The “traffic light” coalition government, which collapsed in November, argued until the end about suspending the debt brake again by declaring an emergency situation under Article 115(2), sentence 6 of the Basic Law. The budgetary situation was tense after the German Federal Constitutional Court, in its 2021 Second Supplementary Budget Act judgment, declared the reallocation of loan authorisations originally approved to tackle the Corona crisis unconstitutional. The debt brake was also the subject of political debate during the election campaign.

III. Possible expansion of financial room for manoeuvre in future legislation

The room for manoeuvre in budget preparation could be expanded through amendments to the Basic Law. This could involve reforming provisions on new borrowing or creating earmarked special funds.

1. Proposals for reforming the debt brake

A reform of the debt brake could be limited to raising the current ceiling of 0.35% of nominal GDP. This would allow for higher annual structural debt, creating more budgetary flexibility. Simultaneously, it would maintain a rigid limit on permissible new federal debt, compelling the Bundestag to exercise fiscal discipline.

On the other hand, a more flexible approach would be to introduce additional exceptions that permit deviations from the debt limit to finance specific future-oriented investments. Unlike a blanket increase in the deficit limit, debt incurred under such exceptions would be earmarked for particular purposes.

Additionally, discussions include extending the cyclical component and introducing transitional provisions after suspending the debt brake. This would enable a gradual return to compliance with the deficit limit following an emergency situation as defined in Article 115(2) sentence 6 of the Basic Law.

2. Special fund under constitutional law

Even without reforming the debt brake itself, additional debt can be constitutionally secured through what is known as a “special fund” (Sondervermögen). This is a constitutional authorisation for the federal government to borrow specific amounts. In 2022, following the outbreak of war in Ukraine, this instrument was used to establish a €100 billion special fund for the German armed forces pursuant to Article 87a(1a) of the Basic Law. The provisions on new borrowing expressly do not apply to this special fund pursuant to Article 87a(1a), sentence 2 of the Basic Law.

IV. Constitutional amendments: political feasibility?

Both debt brake reform and the creation of further special funds would require constitutional amendments, necessitating a two-thirds majority in the Bundestag. However, the political balance of power after the Bundestag elections on 23 February 2025 makes achieving this constitutional majority uncertain.

1. AfD and Left Party with blocking minority in the 21st Bundestag

In the newly elected 21st Bundestag, the AfD and the Left Party together hold 216 of the 630 seats. Holding over one-third of all seats, these parties possess a blocking minority: Bundestag resolutions requiring a two-thirds majority will not be able to pass without votes from either the AfD or the Left Party.

As the CDU/CSU, SPD and Alliance90/The Greens rule out cooperation with the AfD, Left Party support would be crucial for reforming the debt brake or establishing additional special funds. While the Left Party advocated even abolishing the debt brake during the election campaign, their support for reforms aimed at increasing defence spending is unlikely.

2. Reform still possible with the majority of the 20th Bundestag?

Serious political consideration is therefore being given to the idea of pushing through a reform of the debt brake using the majority held by the 20th Bundestag, where CDU/CSU, SPD and the Greens still command two-thirds of the seats. In the wake of the recent elections, Green and SPD representatives have voiced support for this strategy. Even CDU chancellor candidate Friedrich Merz has suggested that reforming the debt brake with the current Bundestag would be feasible. However, Thorsten Frei, the CDU/CSU parliamentary group's Secretary, proposed an alternative: creating another special fund to boost defence spending.

Constitutionally, the 20th Bundestag could amend the Basic Law even after the 21st Bundestag’s election. Article 39(1), sentence 2 of the Basic Law provides that a Bundestag’s term only concludes when its successor convenes. Until then, the current Bundestag retains full parliamentary powers. Therefore, with the appropriate majority, it can pass constitutional amendments and could reform the debt brake or establish a new special fund. Any such constitutional amendment would still need the Bundesrat’s approval by a two-thirds majority. According to Article 39(2) of the Basic Law, the new Bundestag must convene within 30 days of the election, meaning that it must hold its constituent session by 25 March 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).