ECB's Nagel Endorses Raising Borrowing Maximum to 1.4% of GDP in German Debt Brake Reform

4 March 2025

By Marta Vilar – MADRID (Econostream) – European Central Bank Governing Council member Joachim Nagel in his capacity as president of the Deutsche Bundesbank has endorsed a proposal to increase the German government’s borrowing limit to a maximum of 1.4% of GDP from the current 0.35% level, according to a Bundesbank announcement on Tuesday.

‘In concrete terms, the proposal envisages increasing central government’s scope for borrowing from 0.35% to a maximum of 1.4% of gross domestic product (GDP) if the debt ratio is below the 60% mark’, the Bundesbank said.

From this 1.4%, 0.5pp would be considered a ‘low-debt base’ that would not be designated for any particular purpose, according to the document, while the remaining 0.9pp would only be used for additional investment.

‘Part of this investment component would be intended for grants to state and local governments, which account for the majority of fixed asset formation’, the press release said.

If Germany’s debt-to-GDP ratio were to surpass the 60% threshold, the 0.9% component would still be valid, but the 0.5% base would not be accessible, the document stated.

‘This would reward a debt ratio of below 60% whilst at the same time creating planning certainty for investment’, Nagel said, according to the press release.

The Bundesbank estimated that this debt brake reform would allow Germany to finance additional investments of up to €220 billion via debt issuance by 2030, as long as the debt-to-GDP ratio remains below 60%.

‘Should the debt ratio exceed 60%, this amount would be capped at around €100 billion up to 2030’, the document said.

‘We would prefer a fundamental reform of the debt brake that affords better predictability, but a special fund with comparable financial parameters would also be an option’, Nagel was quoted as saying.