German politics: Parliament to debate debt brake reform

• CDU/CSU and SPD agreed to reform Germany's constitutionally enshrined "debt brake" to allow higher defense spending
• The Green Party has threatened to block the plan to ease the debt brake
• Germany's conservatives ready to start coalition talks with center-left SPD

Here is a round-up of the main developments around the debt brake debate and efforts to form a new government on Thursday, March 13.

03/13/2025March 13, 2025

Germany's conservatives set to kick off coalition talks with SPD

Germany's conservative conservative alliance of the Christian Democrats (CDU) and their Bavarian sister party, the Christian Social Union (CSU), is set to begin coalition talks with the center-left Social Democrats (SPD) of outgoing Chancellor Olaf Scholz.

Following its victory in February's parliamentary elections, the conservative bloc led by Friedrich Merz has agreed on a number of key points in exploratory talks with the SPD.

Now, 16 working groups, each consisting of 16 representatives of the CDU, CSU and SPD, will spend 10 days negotiating the details of a joint government program. Their work would then be handed over to a negotiating group that would include the leaders of each party.

A draft coalition agreement would then be submitted to the three parties for approval. The SPD has already said it wants to consult its members on a draft agreement. Merz, who is likely to be the next chancellor, has said he plans to have the new government in place by Easter in mid-April.

03/13/2025March 13, 2025

What is Germany's debt brake?

In Germany, the federal government and the 16 states are obliged to balance their books and are practically prohibited from taking out extra loans. No other G7 country has such strict limits on new borrowing.

The rules are enshrined in the Basic Law, Germany's constitution, and apply — with minor differences — both at the federal level and in the 16 states, or "Länder" in German.

The requirement was introduced during the 2009 global financial crisis. The debt brake became legally binding for the federal government in 2016 and for the states in 2020.

However, the debt brake is not absolute, at least not for the federal government. While an outright ban on debt applies to the federal states, the federal government is permitted net borrowing amounting to a maximum of 0.35% of economic output.

The Basic Law also allows the debt brake to be suspended "for natural disasters or unusual emergencies beyond governmental control and substantially harmful to the state's financial capacity."

Read more here: What is Germany's debt brake?

03/13/2025March 13, 2025

Welcome to our coverage

The lower chamber of Germany's outgoing parliament, the Bundestag, will convene in a special session to discuss reforming the country's constitutionally enshrined government borrowing limits, known as the "debt brake."

Reform would ease the 2008 global financial crisis-imposed measures, seen by many as an outdated financial stranglehold. The move would allow Germany to spend heavily on defense and infrastructure.

The reform is being pushed by the conservative CDU/CSU bloc, led by incoming Chancellor Friedrich Merz, and the Social Democrats, who are in preliminary talks to form a coalition after the February elections.

However, the move is controversial as some parties, including the far-right AfD, have accused the major political parties of pushing through new legislation before the newly elected parliament convenes.