Social Democrats double down on plans to reform Germany’s debt limit rule to secure future investments

Germany’s Social Democrats (SPD) are doubling down on their efforts to achieve a reform of the country’s constitutionally enshrined limit on new government lending, the so-called debt limit, reported the Süddeutsche Zeitung. “The debt limit is no longer fit for purpose in its current form” and it “poses a risk to the welfare of current and future generations,” said the SPD’s parliamentary group in a draft paper seen by the newspaper. “Not allowing money to be borrowed for future investments can prove fatal for an economy in the long run,” the document reads further. The group could adopt it at a meeting later in the week.

Calls for a reform of the government’s credit limit, which was put into the constitution in the aftermath of the financial crisis in 2009, came quickly after a court ruling at the end of last year declared 60 billion euros in planned borrowing for climate and transformation projects as unconstitutional. The limit stipulates that new debt must not exceed 0.35 percent of annual economic output. MPs from chancellor Olaf Scholz’s SPD now argue that the limit would choke off urgently needed investments in future projects, calling for a “deal on the future of budgeting.” The group proposes incorporating the constitutional court’s ruling and opening new avenues for guaranteeing that the government has the money to implement much-needed and widely demanded investments.

The debt limit ruling in November 2023 dealt a heavy blow to Scholz’s coalition government. They had to quickly agree on a range of austerity measures to fill the gap in the budget and ensure key projects and programmes were not threatened by the lack of funds. Among the measures decided on by the coalition were cuts to fossil fuel subsidies for the farming industry, which resulted in countrywide strikes in early January that were overshadowed by fears of hijacking by far-right groups.