Federal Budget Why the debt brake urgently needs reform

IG Metall is advocating for a reform of the debt brake.

Here we explain why we are calling for this reform—and exactly what we want to change about the debt brake.

Why does the government need more money?

Just take a look at the state of public infrastructure in Germany: a dilapidated rail network, collapsing or closed road bridges, and schools with leaky roofs.

The dilapidated infrastructure causes significant economic damage: tradespeople and logistics workers have to take long detours, commuters lose work time, and children cannot learn under optimal conditions.

Germany has been living on a shoestring for far too long. A massive investment backlog has built up. Good infrastructure was once considered a competitive advantage for the Federal Republic. Today, its dilapidated condition is cited as a drawback by many companies.

How much money is needed?

It’s hard to say exactly down to the last euro. But there are many economists who have thoroughly examined the investment backlog in Germany. The IMK, an institute with ties to labor unions, and the employer-funded German Economic Institute (DIW) published a study on this topic in 2024.

According to the study, Germany will need an additional 60 billion euros in investment each year over the next ten years—for a total of 600 billion euros.

This figure is a minimum estimate. It does not take into account funding for the decarbonization of industry. Because sustainable business models are often not yet price-competitive by international standards, certain industrial sectors are dependent on support. That, too, requires money.

What exactly should the government spend this additional money on?

The largest item is likely to be municipal infrastructure: that is, the renovation of the road and rail networks and schools, and the expansion of public transit.

Added to this is providing relief to industry and promoting climate protection and energy-saving measures.

Are government investments worthwhile?

Yes. Many studies show that public investments pay off. With modern infrastructure, tradespeople can reach their customers faster, and employees can get to work more quickly. With reliable childcare, parents miss fewer days of work or can increase their working hours. Investments in education yield a high return: people can later take on more highly skilled jobs and are more productive.

Loan-financed investments in the future secure tomorrow’s prosperity. Because they stimulate economic growth, they are largely self-financing.

Conversely, if the necessary investments are not made, future generations will bear the consequences of dilapidated infrastructure, environmental problems, weaker growth, and the loss of industrial jobs.

Investments are fine—but why do we need to reform the debt brake to make them happen?

Because the need for investment is so great that it cannot be covered by the regular federal budget. This requires borrowing. However, the debt brake allows only very limited borrowing. It unnecessarily shackles the government.

Even the German Council of Economic Experts—better known as the “Economic Wise Men”—advocates for a reform of the debt brake. So does the International Monetary Fund (IMF).

The world has changed radically since the debt brake was introduced. That is why fiscal policy should change as well.

What exactly should be reformed about the debt brake?

IG Metall wants to replace the debt brake with a so-called “golden rule.” The golden rule means that the government may take on debt in order to invest in the future. The golden rule follows the same logic that companies use: they use debt—that is, loans—to finance investments. The returns on those investments can then be used to repay the loans.

Isn’t higher government debt dangerous?

Whether a country’s debt level is considered a cause for concern is indicated by the interest rates a country must pay on new loans. Germany pays very low interest rates on loans. It has a high credit rating on the capital market. In other words: Financial market participants largely agree that Germany is well positioned to manage its debt.

No wonder: By international standards, Germany’s debt level is moderate. Countries like the U.S. or Japan have much higher levels of government debt.

Of course, this doesn’t mean that Germany should run up excessive debt. But it does mean that Germany has financial leeway. We should make use of it.

Does additional debt place a burden on the younger generation?

Only if the money is spent on the wrong things. Debt-financed investments in infrastructure benefit future generations. They lay the groundwork for tomorrow’s prosperity.

Inheriting a run-down country with dilapidated infrastructure—that would be a far greater burden for the younger generation than a slightly higher level of debt.

Furthermore, a country’s debt level is always measured in relation to its economic output. Investments drive economic growth. This puts government debt into perspective.

What are other countries doing?

Measured by its economic strength, Germany continues to invest less than the EU average in its public infrastructure. The level of modernization of the rail network, waterways, and highways is declining. Public infrastructure continues to lose value.

Conclusion: In its current form, the debt brake is a brake on the future. There is virtually no way around reform if we want to put Germany on a solid footing in the coming years.