FiscalFuture’s Carolina Ortega Guttack and Matilda Gettin reflect on Germany’s reform of the debt brake, which is set to return to the centre of political debate this month
The economy is in turmoil, and democracy is under strain. Paradoxically, in times of overlapping emergencies, transformation stalls — and the huge investments needed to secure our future risk going unmet.
Germany is now at a crossroads. A reform of the country’s fiscal rules — mainly the so-called debt brake (“Schuldenbremse”) — is about to return to the centre of political debate, with the expert commission expected to present its results by the end of March 2026. Yet there is a serious threat and a growing concern that green investments and climate protection could be sidelined in this process, undermining progress for the years to come.
With this contribution, FiscalFuture aims to raise awareness for the upcoming debates and foster broader exchanges in the new economy ecosystem. Based on our experience with the fiscal package, we believe debates could also spark discussions beyond Germany.
A Turning Point in Fiscal Policy
One year ago, in March 2025, the newly elected government in Germany adopted a major fiscal package – a real turning point in German fiscal policy. However, this took place under exceptional circumstances and within a very narrow timeframe. The current expert commission of 15 members is now working on a more profound and lasting reform of the debt brake to secure future-oriented investments, as outlined in the coalition agreement.
In fact, the new additional funds are limited in both time and volume: The additional infrastructure and climate fund — worth €500 billion euros — will run for 12 years from 2025 to 2036. Three-fifths, €300 billion euros are allocated to federal spending, one‑third, €100 billion euros to the federal states, and €100 billion euros to climate projects within the Climate and Transformation Fund (“Klima- und Transformationsfonds”).
Yet after the fund expires, the long-term financing of investments, particularly climate investments, remains uncertain. One possible solution could be to shift the existing exemption for defence and security spending towards investment spending, which would be both fiscally sound and economically meaningful.
Renewed Debate on the Reform of the Debt Brake
The debt brake, infrastructure and climate fund, and the sectoral exemption for defense and security spending are anchored in the German constitution. This means that changing the fiscal framework requires a two‑thirds majority in both parliamentary chambers.
According to current polls, there is a high risk that a democratic two‑thirds majority may no longer be guaranteed after the next federal election — a development that would limit the government’s ability and flexibility to act. This was already seen with the adoption of the fiscal package in March 2025 following the US’s withdrawal from the Atlantic Alliance.
From our perspective, this debate marks a true potential of reshaping Germany’s — and possibly Europe’s — fiscal policy framework and this will need broad support.
FiscalFuture is therefore closely following the expert commission’s work and expects a renewed political debate on the debt brake once its final report is published in late March. From our perspective, this debate marks a true potential of reshaping Germany’s — and possibly Europe’s — fiscal policy framework and this will need broad support.
On the Way to Complete the Reform of Germany’s Fiscal Rules
This is a historic opportunity to complete the reform of the debt brake from March last year, and to secure a permanent investment pathway for climate neutrality beyond the expiry of the special fund.
First, for one year with the special fund for infrastructure and climate neutrality, it is crucial to ensure that investments align with climate goals. The fund must not finance fossil fuel infrastructure that counteracts the green transition.
This is a historic opportunity to complete the reform of the debt brake from March last year, and to secure a permanent investment pathway for climate neutrality beyond the expiry of the special fund.
On January 29th, the Federal Administrative Court ruled the current Climate Protection Programme insufficient to meet national climate targets. On March 25th, the German government is expected to present an updated Climate Protection Programme. The timing, coinciding with the expert commission’s recommendations on the debate brake, offers a unique chance to push for sustainable long-term financing of climate investments.
Second, the political debate on reform remains polarized: while the conservative party, CDU, rejects further loosening of the debt brake, the Social Democrats call for greater fiscal flexibility to enable long-term investment.
A coherent, investment‑oriented fiscal architecture is urgently needed to secure the state’s long‑term capacity to act.
In our view, these positions are not irreconcilable: Establishing a clear, transparent investment framework beyond the special fund — possibly by shifting defence exemptions toward investments — would strengthen both fiscal discipline and economic resilience. On the contrary, the current patchwork of the debt brake, special funds, and exceptions is neither transparent nor sustainable. A coherent, investment‑oriented fiscal architecture is urgently needed to secure the state’s long‑term capacity to act.”
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Carolina Monika Ortega Guttack
Carolina is Director for Research and Project Development at FiscalFuture. FiscalFuture is an organisation of young economists working on future-fit fiscal policy based in Berlin.
Matilda Gettins
Matilda Gettins is Policy Advisor on Climate Finance & Community at FiscalFuture. FiscalFuture is an organisation of young economists working on future-fit fiscal policy based in Berlin.