(de-news.net) – The Deutsche Bundesbank has proposed a reform of Germany’s federal debt brake, contingent on Germany’s debt ratio remaining below 60 percent, according to media reports. If the debt ratio stays below 60 percent, the federal and state governments could borrow up to 220 billion euros more by 2030. However, if the ratio exceeds 60 percent, borrowing capacity would be limited to around 100 billion euros by 2030. The proposal suggests increasing the federal borrowing limit from 0.35 percent to 1.4 percent of GDP if the debt ratio is below 60 percent, with 0.5 percent allocated as a low-debt cushion and 0.9 percent exclusively for investments. If the debt ratio exceeds 60 percent, the 0.9% investment allowance remains, but the 0.5 percent cushion is removed. A similar borrowing framework and investment protection could also be achieved with a special fund, either temporary or volume-limited. Bundesbank Chief Joachim Nagel emphasized the need for a fundamental reform to provide better planning certainty. The draft is set to be approved by the Bundesbank’s board today, potentially enabling up to 220 billion euros in additional loans by 2030.
In light of considerations to reform the debt brake with majorities from the old Bundestag, the municipalities have urged prompt action. André Berghegger, CEO of the German Association of Cities and Municipalities, emphasized the need for swift measures to improve municipal finances. He outlined three necessary steps: federal budget cuts, modifying the debt brake to include a special fund for security and defense, and an infrastructure fund for municipal investments. Additionally, he called for an adjustment of the debt brake for states, allowing them to incur debts up to 0.35 percent of their GDP.
Meanwhile, Economic Advisor Veronika Grimm has cautioned against hastily approving new special funds, arguing that the current coalition’s reliance on debt-based subsidies has proven ineffective. She urged future Chancellor Friedrich Merz and the CDU/CSU to focus on a new growth strategy instead of additional debt, emphasizing the need for a European collaboration in establishing a domestic defense production, particularly in high-tech sectors.
