Evidence of underinvestment is not hard to find. Germany’s train system makes a mockery of the country’s reputation for punctuality. In September a tram bridge collapsed, thankfully in the middle of the night. Public services are stuck in the 20th century, such is their phobia of anything digital. Estimates suggest that required public investment over the next decade amounts to more than 15% of GDP.

The good news is that Germany can afford to splurge. At 62% of GDP, the country’s public debt is half that of America’s (see chart), and it is not growing. With a deficit of 2% of GDP and projected nominal growth of about 3% in 2025 and 2026, Germany could scarcely be in a stronger fiscal position.

The bad news is that large-scale investment is almost impossible under the current constitution, unless the government cuts back drastically elsewhere. German states are not allowed to run any sort of deficit. The debt brake means the federal budget can go into the red by little more than a rounding error. Exceptions are only granted in an emergency, such as during the covid-19 pandemic and the energy crisis following Russia’s invasion of Ukraine.

In narrow circumstances, workarounds can be employed. To release €100bn ($111bn) for defence spending, Germany’s main political parties in 2022 agreed to put a special fund into the constitution, alongside the debt brake itself. Such a Sondervermögen is considered a fallback position for the next round of defence investment or infrastructure upgrades after the election, should substantial reforms fail. “It’s a temporary fix, time-limited and capped, which makes it easier for the CDU to agree to,” reckons Florian Schuster-Johnson of Dezernat Zukunft, a think-tank.

Genuine reform would be better. The basic option is to exclude defence spending from the debt brake, as a group of economists has suggested. Investment that demonstrably raises Germany’s productive potential, which defence spending does not, could also be exempted, according to another idea going around.

But defence spending is going to need to be higher for some time to counter Russian aggression. Germany’s economy also needs more domestic demand in order to rebalance its export-dependent growth model, which will be a slow process. Since neither households nor firms seem ready to borrow and spend—on the contrary, the household savings rate is rising—the state will need to run a sizeable ongoing deficit.

So far, few politicians, or even wonks, are willing to countenance such an idea. The government’s council of economic experts suggests allowing deficits of about 1% of GDP. That would, however, be limited to times when the debt-to-GDP ratio is below 60%. Only the very boldest dare to dream that a new constitutional rule might contain no deficit figure at all, and instead allow governments to set the rule through straightforward legislation.

If small parties win enough votes to form a blocking minority, even the most limited reforms may be impossible. Should they hold a third of seats in the Bundestag, they could prevent changes to the constitutional rule, as well as special funds to circumvent it. According to The Economist’s model, there is a 60% chance of a such an outcome, owing to a comeback by Die Linke, which is now polling above the 5% threshold to enter parliament. Although the socialist party has long opposed the debt brake, it may not want to weaken the rule to allow more defence spending.

In an ironic twist, Germany might end up dependent on EU debt, which it usually opposes, to fund its armed forces. Since such borrowing would not count in national figures, it would not fall foul of the debt brake. Schäuble’s final legacy, therefore, could be an inversion of the country’s normal relationship with the EU.

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