German Bundesbank proposes debt brake reform allowing up to EUR 220bn additional borrowing for investment by 2030

The German Bundesbank published an expanded concept for reforming Germany’s federal debt brake, setting out a stability-oriented approach to increase public investment while keeping public finances sustainable and aligned with European fiscal benchmarks. The proposal is presented as a development of the Bundesbank’s 2022 work and is framed as support for investment needs such as infrastructure and defence, while maintaining the view that constitutionally anchored debt brakes are important for long-run fiscal sustainability. The design uses the European Union treaties’ 60% debt-to-GDP reference value as the anchor. If the debt ratio is below 60%, the federation and the Länder could, by 2030, undertake up to EUR 220bn of additional debt-financed spending in total, with the Länder supported via investment grants. If the debt ratio exceeds 60%, the additional envelope by 2030 would be limited to around EUR 100bn. Operationally, the Bundesbank proposes raising the federal government’s borrowing headroom from 0.35% to a maximum of 1.4% of GDP when the debt ratio is below 60%, comprising a 0.5% of GDP “low-debt base” without earmarking and a 0.9% of GDP component reserved exclusively for additional investment, including grants to Länder and municipalities. If the debt ratio is above 60%, the 0.9% investment component would remain while the 0.5% base would fall away. The Bundesbank also notes that similar borrowing space and investment protection could be implemented via a special fund that is time-limited or capped in volume, although it prefers a fundamental reform of the debt brake for better predictability.