Chancellor hopeful Merz open to reform of Germany’s debt brake

Friedrich Merz, the leading contender in Germany’s upcoming federal election, has said he is open to reforming the country’s debt rules.

In a televised debate on Sunday, organised by ARD and ZDF, the leader of the centre-right Christian Democrats (CDU) said such a measure may be necessary to finance greater defence spending.

Chancellor Olaf Scholz, leading the centre-left Social Democrats (SPD), argued that it was “ridiculous” to suggest a bigger defence budget could be financed through spending cuts and economic growth alone.

Referring to a loosening of Germany’s debt brake, Merz responded: “You can discuss everything, but that certainly won’t come at the beginning.

“At the beginning comes the potential for savings, comes growth and real restructuring of the budget, which is urgently needed,” he pointed out.

Germany’s debt brake limits how much money the German government can borrow, restricting the budget deficit to less than 0.35% of the country’s annual gross domestic product (GDP).

The rule seeks to limit the risks of overspending such as high debt servicing costs, reduced investor confidence and the prospect of high taxes in the long term.

Merz’s comments deviate from his party’s official position, as the CDU seeks to maintain Germany’s spending limit.

This is despite the fact that numerous figures in the CDU have been pushing for a reform of the debt brake, claiming that it is contributing to Germany’s economic decline.

The brake has notably been hindering infrastructure investments, required to improve global competitiveness and support businesses.

Germany’s economy shrank by 0.2% last year, after contracting by 0.3% in 2023.

In his bid to become Chancellor, Merz is proposing to cut red tape and taxes to boost growth, as well as reduce welfare benefits.

Defence spending

Merz noted on Sunday that defence spending in Germany would “probably go towards 3%” of GDP.

Part of this push is linked to pressure from across the Atlantic.

To avoid an over-reliance on US funding, President Donald Trump is demanding that EU countries step up their military capabilities and raise defence spending to 5%.

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“Europe needs, basically, a surge in defence. And for that, our defence industrial base must be strengthened”, European Commission President Ursula von der Leyen told reporters in Brussels last week.

“For many, many years, we have under-invested in defence. Thus there’s a great urgency to increase the defence spending with a big magnitude”, she said.

Sunday’s debate was also dominated by disagreements over Germany’s immigration policy.

Merz last month passed a non-binding motion on tougher border control, controversially doing so with the support of the far-right Alternative for Germany (AfD) party.

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The decision to work with the AfD sparked a wave of protests in the country, although Merz argued on Sunday that he was gaining support within certain segments of the electorate.