CDU demands new spending lowers debt ratio

Every euro of new spending must lower the public debt ratio. Not stabilise it. Lower it. That is the CDU's condition for reforming Germany's debt brake, the constitutional cap on government borrowing. Friedrich Merz has made the political price explicit: any change needs two-thirds majorities in both chambers of parliament (FAZ, Reuters). This is not just a Berlin budget question. Germany is the eurozone's largest economy. When it decides how much it can borrow, the ripple crosses every border in Europe.

How the ratio works, and who it favours

Germany's debt brake (the Schuldenbremse) caps the federal structural deficit (the budget shortfall adjusted for booms and busts) at 0.35% of GDP (German Basic Law, Bundesbank). The CDU wants to keep that cap in place as long as debt sits above 60% of GDP. Defence spending, currently treated as exceptional, would return to the regular budget by the early 2030s (t-online).

The debt ratio (total public debt divided by GDP, the size of the economy) can fall even when borrowing rises in euro terms, as long as GDP grows faster. So the CDU's test does not automatically block all new spending. But it forces every proposal through a single gate: does this make the ratio go down?

Germany can walk through that gate. It borrows cheaply, its economy is large enough that growth absorbs moderate new debt, and it has already carved out massive national exceptions for defence and infrastructure. BNP Paribas estimated Germany's 2025 investment push could add roughly 0.7 percentage points to growth in 2026 (BNP Paribas).

Italy cannot. According to LeaseNews, its debt ratio is estimated at 138.5% of GDP by 2026, with a deficit above 3%, keeping it under EU fiscal surveillance. Italy's main investment vehicle is the €194.4bn recovery plan (the PNRR), more than 63% of which consists of loans rather than grants (Business.it). Germany invests with its own balance sheet. Italy borrows from Europe and repays.

Where this squeezes European investment

Germany's fiscal restraint hits the rest of Europe through two channels that matter most. Germany sits at the centre of European supply chains. When it delays public investment, suppliers across the EU lose orders (European Commission).

The bigger constraint is about who gets to borrow for European projects. If Berlin treats debt restraint as a constitutional principle at home, it is unlikely to back large-scale joint EU borrowing. The Commission's proposed 2028–2034 long-term budget requires unanimous approval, giving Germany an effective veto over that question (European Commission). French analysts at Ifri put the contradiction directly: Germany opens national fiscal space for German priorities while resisting comparable ambition at EU level (Ifri).

The Draghi competitiveness report puts Europe's additional investment needs at roughly €800bn per year (Draghi report). No amount of marginal budget trimming reaches that figure. EU-level borrowing, the kind that lets countries like Italy invest without deepening their own debt, would help close the gap. Germany's current answer: not if it means raising the ratio.

The word that does the most work

The CDU's formula is not wrong on its own terms. The IMF stresses that fiscal buffers matter when interest costs are rising and future shocks remain likely (IMF). IMK research found that borrowing for public investment can still lower the debt ratio over time, provided the spending lifts economic output enough (Finanznachrichten/IMK).

Everything hinges on one word: investment. Germany's test asks whether spending lowers the debt ratio. The answer depends on whether the spending raises future GDP. Nobody in Berlin, Paris, or Rome has produced a project-level accounting of which euros qualify and which are normal spending relabelled as investment. Germany's debt-ratio test is economically defensible only if Berlin applies the same standard to its own carve-outs that it demands of EU-level spending. So far, it has not.