Federal states are planning a debt offensive: over 3 billion annually!

Federal states are planning a debt offensive: over 3 billion annually!

In Germany, a financing frenzy has broken out among the federal states since the latest change to the Basic Law, which came into force in May. Six federal states have decided to take on new debt, which will result in new borrowing of more than 3 billion euros annually. This development cannot be overlooked, as the federal government is planning annual loans of more than 176 billion euros from 2026. Picture reports that Lower Saxony wants to fully exploit its maximum permitted new debt of 1.4 billion euros both this year and next. Prime Minister Olaf Lies gave this decision the green light.

But Lower Saxony is not alone. In Hamburg, too, the SPD, CDU and Green parties have drawn up new rules that make it possible to incur new debts of up to 409 million euros per year. Schleswig-Holstein, on the other hand, is planning a second supplementary budget in order to take out additional loans of 519 million euros annually as soon as the legal requirements are met. A supplementary budget with new debt for an “investment offensive” is being announced in Rhineland-Palatinate, while Berlin has no firm figures for this year but is expected to aim for new debt of 780 million euros next year. And Thuringia also has ambitious plans to take out loans of 277 million euros per year in 2026 and 2027. Picture notes that other federal states are also talking about new debts.

Financial responsibility or debt binge?

Criticism of the “debt offensive” is becoming increasingly louder. Reiner Holznagel, President of the Taxpayers' Association, calls for a rethink: "We should not take out new loans, but rather reduce old debts." This raises the question of whether countries are really able to handle this additional debt without burdening future generations.

As part of this debate, the reform of the debt brake is also being intensively discussed. The German Bundesbank has already put forward proposals aimed at keeping government finances stable on the one hand and promoting investments in infrastructure and defense on the other. A stability-oriented path for increased government investment could enable up to 220 billion euros by 2030, the bank said.

The future of public finances

In particular, the 60 percent reference value for the debt ratio from the EU treaties plays a central role. The Bundesbank has determined that an increase in lending flexibility from 0.35 percent to up to 1.4 percent of GDP if the debt ratio remains below 60 percent could be crucial. This is part of the considerations also outlined in the monthly report released this week. Bundesbank sees a clear direction here that aims to promote responsible debt without endangering the future economy. It remains to be seen how the individual federal states and the federal government will deal with this issue in practice.