500 billion euros to strengthen economic dynamics, broad opportunities to increase defense spending beyond the debt brake, and an additional borrowing margin for the federal states of 0.35 percent: These have already been agreed upon by the CDU/CSU and SPD before the coalition negotiations and government formation, still under the old majorities in the Bundestag. Further modernization of the debt brake to permanently strengthen investments is planned to be decided in the new Bundestag by the end of 2025, based on the recommendations of an expert commission.
We discussed the evaluation of the proposals and how short-term measures to increase investments can be combined with the long-term modernization of the debt brake on March 7, 2025, with leading economists. Introducing the implications of the surprising agreement between the CDU/CSU and SPD to create a special fund for infrastructure and exempt defense spending over 1% of GDP from the debt brake were the Saarland Finance Minister Jakob von Weizsäcker and his Baden-Württemberg counterpart Danyal Bayaz.
Precision, speed and confidence
There was broad consensus among the participants about the scale of the challenges facing the upcoming legislative period and beyond – domestically, for example, with social insurance, labor shortages, and administrative modernization, and internationally, in European and defense policy. With the new special fund and the suspension of the debt brake, the federal government addresses central structural problems with significant financial resources and creates appropriate fiscal options to respond to a completely new geopolitical situation. However, according to the participants, it remains to be seen whether the new fiscal leeway can be optimally utilized through sufficient prioritization, as the new government’s projects still need to be detailed. Doubts were raised in this regard.
Overall, the funds must be used purposefully and quickly, but not hastily, to achieve effectiveness and avoid inflationary effects. This is by no means trivial, as pressure on consumptive spending will increase. To achieve real superadditionality – that is, a genuine added value rather than mere redistribution – there should be no simple allocations within the core budget. Otherwise, there is a risk that the new funds will only finance existing obligations rather than setting new impulses. Such fiscal “shifting of tracks” must be avoided at all costs.
Challenges in Fund distribution, climate focus, and defense spending
Participants assessed that there is a risk of price increases due to a rushed approach. However, the greater danger lies not in inflation-driven overheating but rather in too slow implementation, which would cause urgently needed effects to dissipate. One participant also expressed disappointment that the states would only receive 20% of the additional funds, which does not reflect the real distribution of investments and needs between the federal government, the states, and municipalities. It is particularly important to ensure the stronger involvement of municipalities, whose implementation competence is now crucial.
The proposals were also criticized for their lack of climate policy orientation. The expenditures must also serve climate and social goals – especially in view of the legally mandated goal of climate neutrality by 2045. The new regulation regarding the defense exception was also viewed critically in the long term, as the costs for maintaining newly purchased military equipment could lead to a long-term and difficult-to-calculate burden on the budget without generating significant effects on growth and employment.
Conclusion and outlook
Overall, participants saw great opportunities for the new federal government to promote both growth and social relief, based on the financial packages already adopted before the coalition negotiations and government formation – with a potential for political stabilization. However, effects for the population will not be felt until 2026.
What is now important is broad societal will for change, supported by the government, opposition, and associations. Ultimately, it is also about a signal of confidence: Additionality, precision, and appropriate speed are key to achieving real progress with the new financial leeway.
