The German Finance Ministry is reportedly exploring a further relaxation of the stringent debt brake, potentially excluding interest payments on loans used to fund defense spending. According to reports in “Handelsblatt”, citing multiple government sources, Finance Minister Lars Klingbeil and Defense Minister Boris Pistorius (both SPD) have already discussed the proposal.
Should the government proceed with the amendment, it would significantly expand the available fiscal space in the federal budget over the coming years. Calculations by the IW, an employer-backed economic institute, suggest that Klingbeil could potentially finance an additional €19.6 billion in debt between 2025 and 2029. This would provide crucial relief to the Finance Minister, who currently faces a projected funding gap of €172 billion between 1926 and 2029, totaling approximately €34 billion in a single year.
However, the proposal is generating considerable internal debate within the governing coalition. Discussions regarding including interest payments within the existing special allocation for certain strategic investments arose earlier this year during constitutional amendments and the opposition CDU vehemently opposed the idea. This stance remains unchanged. Critically, sources within the Chancellery express skepticism towards the Finance Ministry’s planning, raising concerns about the potential undermining of fiscal discipline and the precedent this would set. While Defense Minister Pistorius is reportedly supportive of the move, critics argue it risks blurring the lines between necessary investment and unsustainable borrowing, particularly given existing pressures on other social programs. The move will likely reignite the debate over the long-term sustainability of Germany’s fiscal policy and the delicate balance between national security and economic stability.