Debt brake in danger: dispute between the Union and the SPD escalates!

Debt brake in danger: dispute between the Union and the SPD escalates!

Today, the reform of the debt rule in Germany is becoming a central issue. As the FAZ reported, this process could suffer a similar fate to the last failed election of judges for the Federal Constitutional Court. This was removed from the Bundestag agenda on Friday after the SPD candidate Frauke Brosius-Gersdorf encountered resistance within the Union faction.

In the context of this political turbulence, the Federal Council simultaneously approved a new tax law that provides relief amounting to around 46 billion euros. In addition, Lars Klingbeil, the finance minister and SPD chairman, is vehemently pushing for a correction of the debt brake. In an internal meeting he already outlined the further procedure for the reform.

Investment needs and debt brake

A central debate within the coalition concerns the Union's concerns that a reform of the debt brake could lead to further debt opportunities. While the Union and SPD have already changed the Basic Law to enable security policy spending and special debts of 500 billion euros, the Finance Ministry is planning a total of 850 billion euros of additional new debt by 2029. Critics warn that Germany's debt burden could increase by 50 percent in less than five years.

A look at the infrastructure shows that Germany also has to cope with a significant investment backlog. According to the bpb The areas of transport, education, decarbonization, digital infrastructure, health, internal security and defense are particularly affected. The current state of the infrastructure is alarming: unpunctual trains, closed bridges and dilapidated schools are just some of the urgencies.

Public perception and need for investment

The Ipsos Global Infrastructure Index shows a significant decline in the positive assessment of infrastructure from 54 percent in 2016 to just 35 percent in 2024. According to estimates, Germany will need a total of 600 billion euros additional in the coming years for necessary infrastructure investments, which corresponds to around 60 billion euros annually. The BDI estimates that there will be a lack of 400 billion euros for investments over the next ten years.

The largest investments are necessary in the areas of transport, education and decarbonization. Nevertheless, it should be noted that net investments in Germany have fluctuated around zero since the 1990s. Municipalities, which account for 41 percent of public investments, often report negative net investments. The perceived investment backlog in municipalities amounts to 186 billion euros, with 73 percent of municipalities reporting backlogs in administrative buildings.

For the future, it is crucial that the coalition strives for reforms in order to both resolve the investment backlog and secure prosperity in Germany. The expert commission set out in the coalition agreement, which is supposed to develop a proposal for modernizing the debt brake by the end of 2025, will play a central role in this. The composition of this commission raises concerns because there is a junction between the interests of the CDU/CSU, SPD and the smaller parliamentary groups.

Overall, it remains to be seen whether the reform of the debt brake will succeed or whether it will fail due to resistance from the CDU/CSU, which could have far-reaching consequences for Germany's future financial policy.