Federal Council endorses modifications to the Fundamental Law concerning Debts and Specific Assets
Germany has taken a significant step forward in shaping its future, as the Bundestag and Bundesrat have approved a constitutional amendment with a two-thirds majority. This amendment, among other things, proposes a partial relaxation of the debt brake and establishes a special fund of 500 billion euros for additional investments in infrastructure and achieving climate neutrality by 2045.
The existing tensions in international politics, including the ongoing Russian attack on Ukraine, have significantly changed the security situation in Europe. As a result, the future federal government in Germany faces the challenge of significantly strengthening the capabilities of national and alliance defense. Enhanced defense capability requires a well-developed, functional, and modern infrastructure.
The states and municipalities have significant financing needs after the crises of previous years and in view of many new challenges. These financing needs arise from ensuring a modern education system, digitizing administration, integrating refugees, and strengthening population protection. The special fund does not affect the debt brake, but expenditures up to one percent of the nominal gross domestic product for these areas of responsibility must be financed by the budget.
The decision on how the 500 billion euro special fund will be used lies with the German federal government and its relevant ministries. This involves coordination between federal, state, and local governments, as well as oversight by the Bundestag given the scale and public nature of the fund.
Another 100 billion euros will flow into the Climate and Transformation Fund, which can only be used for additional investments in infrastructure and to achieve climate neutrality by 2045. The states can invest 100 billion euros from the special fund in their infrastructure.
The constitutional amendment also provides relaxations for the states regarding the debt brake, allowing them to take on debts amounting to 0.35 percent of the gross domestic product together. Higher expenditures can be covered by taking on new debt after the constitutional amendment. Expenditures for defense, civil defense, intelligence services, and military aid for attacked states like Ukraine will no longer be counted towards the debt rule of the Basic Law once they reach a certain level.
This modern infrastructure significantly influences competitiveness and economic growth. The law is expected to provide much-needed financing for the states and municipalities, helping them meet their financing needs and ensuring a prosperous and secure future for Germany. However, the new US administration's stance on international politics remains uncertain, which could potentially impact Germany's strategic decisions moving forward.
