The expert commission tasked with modernizing Germany’s debt brake regulation appears unable to reach a consensus on a unified reform concept, according to a report by the FAZ. The body, composed of both politicians and scientists, will therefore present the government with two alternative models.
One proposed concept would force the federal government towards greater fiscal prudence under the requirement of a fundamental amendment to the Basic Law. The second proposal allows for greater flexibility regarding public investments. Since a joint agreement could not be achieved, these two elements-the competing proposals-will be discussed during the commission’s final meeting this Wednesday at the ministry, the FAZ reported based on sources close to the committee. The official report concerning the “breathing debt brake” is expected to be delivered next week.
Both proposals share a common element: they define what is termed a “structural budget deficit,” which is slated to be enshrined in the Basic Law. This structural deficit refers to the annual new borrowing figure after adjusting for economic fluctuations. Under the current debt rule, the deficit for the federal government is permissible to be up to 0.35 percent of the gross domestic product (GDP). However, the two proposals put forth by the commission suggest different levels of generosity for this structural deficit.
The primary difference between the two plans lies in how the overall debt load is managed. Specifically, one proposal entails a mandatory requirement that the total debt must progressively decrease relative to the economy’s output each year, while the other does not impose this strict annual reduction.
Currently, Germany’s debt-to-GDP ratio stands at 63.5 percent. Due to significant special debts incurred for defense and infrastructure, this ratio is projected to rise toward 80 percent in the medium term. A stricter set of debt rules could potentially guide this ratio back down in stages. Yet, critics of this approach within the commission warn that mandating continuous debt reduction would severely limit the funds available for new annual borrowing, subsequently cutting into investment capital for roads and other public necessities. Therefore, they favor the more permissive option.
The alternative solution hinges on the idea that the debt-to-GDP ratio will automatically decline over time if economic growth-fueled by increased investment-is substantial enough, causing the GDP to grow faster than the debt itself. Supporters view significant public investment as a crucial prerequisite for growth in Germany. Conversely, opponents argue that this reliance on future growth cannot be assured, noting that this path would not guarantee a reduction of the debt level, as required by EU law when the debt ratio exceeds 60 percent. Adopting this approach would mean Germany would not be moving toward the Eurozone’s upper debt ceiling for protection, even if no further crises necessitated emergency loans-an outcome that would align with historical experience.
The fifteen-member expert commission was led by three politicians from the governing parties. The most prominent figure is SPD politician Stephan Weil, former Minister-President of Lower Saxony. Reinhold Hilbers, former Finance Minister of the same region, represents the CDU, and Stefan Müller, former Parliamentary State Secretary in the Federal Ministry of Education and Research, represents the CSU.
Throughout the months-long deliberation, no consensus emerged between the politicians or the various groups of scientists, rendering compromise attempts unsuccessful. The divisions appear too deep: the Union side insists on a highly restrictive fiscal course, whereas the SPD considers greater borrowing capacity essential. This tension is further amplified by public pressure on the CDU, given that Friedrich Merz, as a Chancellor candidate, initially ruled out higher debt levels but later pushed through the 500-billion euro special fund for infrastructure before his run in the Bundestag.
