Merz signals end to debt brake reform hopes

The debt brake, which limits public borrowing to 0.35% of gross domestic product, remains a point of friction within the governing coalition. While an expert commission was established to modernize these fiscal rules, the panel is set to deliver multiple competing proposals rather than a single path forward, further complicating the legislative outlook. The commission, which began its mandate last September, was initially expected to finalize its findings by the end of 2025.

Merz acknowledged that his administration’s recent approval of a 500-billion-euro infrastructure fund and broad exemptions for defense spending have strained his political credibility. Despite these massive spending surges, the Chancellor insists that Germany’s fiscal position remains stable enough to maintain a top-tier credit rating. He maintained that he would only reconsider his stance on borrowing if the country’s favorable refinancing terms were to deteriorate, noting that he would be forced to impose strict fiscal discipline if those economic conditions failed.