Debt Brake Flexibility Sparks Debate

Following recent adjustments to CDU leader Friedrich Merz‘s stance on the debt brake, a growing number of german federal states are contemplating new loans. However, these funds are not earmarked for infrastructure improvements or future-oriented investments. Rather, they are intended to alleviate the escalating financial burden associated with supporting refugees.

The Rising Cost of Support

The financial strain is significant. In the past year, Bavaria spent €2.3 billion on refugee support, while Hesse allocated €1.2 billion, and Berlin expended €1 billion. These figures highlight the substantial resources required to provide housing, healthcare, education, and other essential services to asylum seekers and refugees.

To put this into viewpoint, consider that Germany received over 200,000 asylum applications in 2024 alone, according to the Federal Office for Migration and Refugees (BAMF). This influx places considerable pressure on state resources, particularly in regions with larger refugee populations.

States opt for Loans to Cover Expenses

Berlin has already announced plans to secure special loans,potentially reaching €1.3 billion in a double budget for 2026/2027, specifically to address these costs. Hesse is also considering new debts of €670 million for 2025, despite having the theoretical capacity to borrow up to €1 billion under the revised debt regulations.

Other states, including Schleswig-Holstein, North Rhine-Westphalia, Lower Saxony, and Saarland, are actively evaluating similar measures or remain undecided. North Rhine-Westphalia, for instance, has allocated €3.4 billion for refugee-related expenses in its current budget, demonstrating the scale of the financial commitment.

Dissenting Voices: States resist Borrowing

However, not all states are embracing debt as a solution. Bavaria, saxony-Anhalt, Baden-Württemberg, Hamburg, Rhineland-Palatinate, and Saxony are reportedly opposed to taking on new debt to finance refugee support. These states aim to manage the expenses within their existing household budgets, prioritizing fiscal obligation and avoiding increased debt burdens.

Debt Brake Flexibility: A Double-Edged Sword?

The current debt brake allows for new debt up to a maximum of 0.35 percent of gross domestic product, although this is not formally earmarked for specific purposes. The decision by some states to utilize this flexibility to cover migrant costs, rather than investing in infrastructure, education, or healthcare, raises concerns about long-term economic priorities.

Economists are divided on the issue. Some argue that borrowing to support refugees is a necessary short-term measure to address a humanitarian crisis. Others warn that it could lead to unsustainable debt levels and divert resources from crucial investments that would benefit the economy in the long run.

The key is to strike a balance between providing adequate support for refugees and maintaining fiscal responsibility.

A leading economist, speaking on condition of anonymity.

The Broader Implications

The debate over refugee financing highlights the complex challenges facing germany as it grapples with migration and integration. The decisions made by individual states will have significant implications for their financial stability and the well-being of both refugees and long-term residents.

The situation underscores the need for a comprehensive and sustainable approach to migration management, including fair burden-sharing among states, effective integration programs, and long-term investments in infrastructure and human capital.