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German Chancellor-in-waiting Friedrich Merz speaks to the media after he reached an agreement with the Greens on a massive increase in state borrowing just days ahead of a parliamentary vote next week, in Berlin, Germany, on March 14, 2025.
Germany drops debt brake, passes preliminary agreement to boost defense, infrastructure, and climate spending
What is the debt brake? A measure that requires the federal and state governments to maintain balanced budgets, effectively prohibiting them from borrowing a penny more than they can repay.
This is a big deal historically in a country that has been committed to fiscal responsibility and pacifism since its out-of-control defense spending in the run-up to World War II. The package allows for “necessary defense spending” above 1% of GDP to be exempt from debt limits, a measure Germany feels is necessary as Europe takes the reins on its own security in the wake of the US withdrawing support.
It's also a major policy victory — along with a significant amount of debt — for the incoming parliament before it even assumes power. Far-right and far-left parties have criticized the move as “deeply undemocratic,” arguing that such a sweeping fiscal measure shouldn’t be passed before the new government, in which they will have greater influence, is in place. While parliament is aiming to form a new government by late April, mid-May is a more realistic timeline.
Lars Klingbeil (l), Chairman of the SPD parliamentary group, and Friedrich Merz, CDU Chairman and Chairman of the CDU/CSU parliamentary group, talk at the end of the 213th plenary session of the 20th legislative period in the German Bundestag.
Will Germany dump its debt brake?
What is the debt brake? A measure that requires the federal and state governments to maintain balanced budgets, effectively prohibiting them from borrowing a penny more than they can repay.
This is a big deal historically in a country that has been committed to fiscal responsibility and pacifism since its out-of-control defense spending in the run-up to World War II. The package does not give an exact figure for funding but says “necessary defense spending” above 1% of GDP should be exempt from debt limits.
Intense negotiations are underway. The center-left Social Democratic Party and the center-right Christian Democratic Union/Christian Social Union — the likely pillars of the next government — are aligned in favor of scrapping the debt brake. This is due largely to the perceived need to boost military spending as the US sends worrying signs about its commitment to European defense.
But there is strong opposition from the AfD and the socialist far-left party, Die Linke, which argue that it is “deeply undemocratic” to pass such a sweeping fiscal measure before the new government — in which they will wield greater influence — is in place.
That means the narrow pathway to dumping the debt brake runs through the Green Party, which appears cautiously open to a deal but is pushing for stricter regulations on how the money will be used.