Accumulating Debt for Everyone
The German Bundestag has recently approved a constitutional amendment that aims to provide states with additional financial flexibility to address current challenges. This change primarily targets increased spending on defense, infrastructure, and foreign aid, loosening the country's traditionally strict "debt brake" (Schuldenbremse).
For cash-strapped states like Bremen, this amendment offers a critical new fiscal tool. The regulation allows states to borrow funds equivalent to up to 0.35% of the gross domestic product. This change enables Bremen and similar states to responsibly increase borrowing within this limit to invest in infrastructure and other areas needing urgent attention without violating constitutional fiscal discipline.
Bremen's Mayor, Andreas Bovenschulte, has expressed gratitude for the new regulation. He believes it will enable Bremen to pursue a consistent policy for growth and employment, easing liquidity constraints that previously hampered economic recovery or growth initiatives.
The amendment does not specify any limitations on how the borrowed funds can be used. Its justification emphasizes the need for states to finance future expenditures, necessary beyond the current ones.
In the broader context, Germany's federal government is exercising this borrowing capacity aggressively, with record borrowing planned (€174.3 billion in 2026) to finance a 2026 budget of over €520 billion, focusing on growth, equity, and security investments. This fiscal flexibility also aligns with Germany’s strategic commitment to increase defense spending as part of a new European defense community initiative, shifting from Germany’s traditionally conservative fiscal approach in light of new security realities, including the war in Ukraine.
The amendment's effects on the overall German economy remain to be seen, but it is expected to enhance the financial autonomy of German states. The increased public debt tolerance formally acknowledged by the amendment could potentially stimulate regional economies, including financially weaker states like Bremen. However, states must balance increased borrowing with fiscal sustainability, ensuring borrowed funds generate sufficient economic returns to manage future debt servicing.
Furthermore, the amendment may set a precedent for subsequent flexibility in fiscal rules, especially under external pressures like EU defense or climate investment demands. This could lead to a shift from Germany’s long-standing fiscal conservatism, increasing public debt acceptance aimed at strategic investments.
In summary, the constitutional amendment expands fiscal room for Germany’s states, including Bremen, enabling strategic investments financed through controlled borrowing, which could significantly improve their public financial management and development prospects amid evolving national and European priorities. The amendment's implementation may offer relief to states facing financial difficulties, providing them with additional financial flexibility to address current challenges and invest in their future.
The constitutional amendment gives states like Bremen a new fiscal tool to borrow funds, which they can use responsibly for investments in infrastructure and other critical areas. This increased borrowing within a limit will help Bremen maintain fiscal discipline while pursuing growth and employment initiatives.
The amendment also aligns with Germany's strategic commitment to increase defense spending and shift from its traditionally conservative fiscal approach due to new security realities, such as the war in Ukraine. This change could stimulate regional economies, including financially weaker states like Bremen, by enhancing their financial autonomy.
