With the new €500 billion special fund from 2025, Germany's national debt mountain is reaching new heights: After the debt brake introduced in 2009 helped to reduce the debt ratio, bringing it below 60% of the Maastricht criterion for the first time in 2019, it rose again in the early 2020s due to the coronavirus pandemic, stagnating economic growth and Russia's war of aggression against Ukraine.
In the financial sphere, intergenerational fairness, summed up in a nutshell, is: "A low national debt ratio combined with a high investment ratio!" Due to the current generation's preference for consumption-oriented spending with immediate effects, there is a risk that both the investment ratio will be too low, and the debt ratio too high. These preferences are transferred from the electorate to politicians. In both areas (debt ratio and investment ratio), the politicians then act according to the motto: "Not in my term of office." This attitude consists of implementing measures that seem pleasant immediately while postponing unpleasant measures so as not to have to implement them during their own term in office.
Background
Long before the environmental and climate crisis was addressed in the context of intergenerational justice, the question of the fair level of government debt for all generations was already being discussed. Government debt has existed since states have existed, and it will likely remain as long as states continue to exist. This seemingly dry topic has always been relevant to kings and princes, to political philosophy, and to early economics, not least because of the numerous government bankruptcies throughout history. In "The Wealth of Nations" (1776), Adam Smith analyses the effects of public debt on the economy and society and warns of the long-term dangers of excessive indebtedness. David Hume wrote of 'public credit' in 1752: "It is very tempting for a minister to use the expedient of public debt, which enables him to play the part of a great man during his administration, without burdening the people with taxes, or exciting any immediate discontent against himself. The practice of creating debt will, therefore, almost infallibly be abused by every government."
Throughout history, many rulers have led their countries to ruin. A state bankruptcy always strikes the weakest individuals, as was recently observed in Ghana, Sri Lanka, or Argentina. People could no longer withdraw their savings from the banks, lost their livelihoods, and there was social unrest.
The consequences
What is the trade-off between the interests of current and future citizens of a state? Increases in spending financed by debt can be decided without conflict. In contrast, cuts to social security contributions, subsidy reductions, or tax increases are usually met with significant resistance from the affected groups and their advocates. Every party that wants to win the next election, therefore, has an incentive to finance election promises through debt.
The resulting national debt means that the "side effects" of these election promises — namely, the interest payments — are passed on to future generations. This temporal gap is crucial: The positive effects of tax breaks, subsidies, or social spending please today's electorate. Those responsible, however, do not bear the political costs themselves, as they will generally no longer hold office at the end of the term. The interest payments, however, restrict future generations and limit their options. In financial statistics, this is measured by the interest-to-tax ratio, i.e., the proportion of government revenue used for debt servicing. If, for example, this ratio is 25 per cent in period 1, then such a state must spend every fourth euro on interest payments, precisely because of the low level of national debt in period 1. The first generation, governing in period 1, can then use 75 per cent of tax revenue to shape policy. If this first generation significantly increases its spending, and therefore the interest-to-tax ratio jumps to 50 per cent in period 2, then their descendants, the second generation, must spend every second euro they collect on interest payments. The second generation then only has 50 per cent of tax revenue available for its own purposes. If one imagines a state as a transgenerational actor with a very long lifespan, it overeats in its early years and then must pay the price later.
Statistically speaking, when certain factors occur, the probability increases that a government will "buy" its hold on power with the help of national debt. Empirical studies in many democracies show that the higher the new debt is, the more parties are represented in the governing coalition, the more different the programs of the coalition partners are, the more likely a government is to be voted out of office, and the shorter the average term of office of a government. There is the danger of a debt spiral. A high level of debt, measured as a percentage of gross domestic product, can trigger a serious debt spiral if external circumstances develop unfavourably. This occurs when rising interest rates burden borrowers, forcing them to borrow more, which only further increases debt and triggers additional interest payments, which in turn are settled with new debt. Such a vicious circle of growing debt and growing interest burdens feeds on itself. The deeper the state sinks into the debt trap, the greater its dependence on financial market developments. Decision-making power shifts from democratically legitimised parliaments to the anonymous forces of the capital markets, which are focused on short-term return maximisation.
To sum up, interest paid by the taxpayer flows into the pockets of creditors with capital to lend. Succeeding governments have less money to spend – politics becomes less about changing society and more about managing decline. Short-sighted management of the public finances today must be paid for tomorrow. Inherited debts stop future governments from doing what they were elected to do.
The aim
The aim of a generationally just public finance fiscal policy is to distribute the burden fairly between generations. A differentiated strategy is required to reduce public debt through a dual approach of lower expenditure and higher revenue. This does not necessarily mean the complete repayment of government debt or an absolute ban on borrowing. Debt must not be used to finance long-term government consumption.
A generation's fiscal policy must not consume more capital (of any kind) than it builds up. Where possible, it should improve the overall generational balance, i.e. leave behind more than it received from the previous generation. It is not only financial assets that matter, but also environmental capital and other forms of capital. That is why, in addition to a debt brake, there also needs to be a constitutionally enshrined investment ratio for new public asset investments.
The level of public debt or the mere budget deficit, viewed in isolation, does not say much about how burdens are shared between generations. The debt pile is easier to shoulder if the economy consistently grows faster than the national debt. More meaningful indicators include the debt ratio, i.e. the ratio of debt-to-GDP, as well as the interest-tax ratio and the interest-expenditure ratio, i.e. the share of interest charges in tax revenue or expenditure. However, as interest rates fluctuate due to external factors, these indicators are not perfect either. In 2002, the German government spent 14.9% of its budget on interest payments, whilst the debt-to-GDP ratio was 61%; in 2010, it spent 10.9% despite the total debt-to-GDP ratio having risen to 83%.
Public borrowing can be intergenerationally just if it is used to make investments that will benefit future generations. Experience has shown that this ‘golden rule’ is open to abuse, as a vaguely defined concept of investment allowed numerous expenditures with questionable future effects to be subsumed under it, and the depreciation or declining utility of an investment over time is often not factored in, meaning that the real costs and benefits are often uncertain.
A second legitimate reason for taking on more public debt might be counter-cyclical spending, i.e. during recessions to stimulate the economy. Such “deficit spending” makes economic sense at the right time but requires the debt to be repaid promptly during an economic upturn. But experience has shown that when the economy picks up, there is no longer any political incentive to pay off the debts incurred and to budget prudently. Instead, the improved economic situation is seen as an opportunity to cater to the respective political clientele. As a result, recessions seem to always leave big piles of public debt in their wake.
A third justifiable reason for government debt is in exceptional circumstances such as pandemics, natural disasters or national defence. That is why the Foundation for the Rights of Future Generations does not criticise the sectoral exemption in the 2025 reformed debt brake. After all, it is of no use to future generations to have a low level of debt if they grow up in a war or in an occupied country. However, the defence exemption clause should be removed from the debt brake again once the threat subsides.
Intergenerationally just public finances must address both revenue and expenditure: through prudent savings on the one hand and a high investment ratio on the other. Not only must existing budgetary resources be managed more wisely, but investments must also be made in the future. In addition, political actors must not further water down the German debt brake, reformed in 2025, but must consistently implement its framework conditions.
The "debt brake" in the German constitution
The reform adopted in March 2025 relaxes the debt brake in some respects but retains the principle of a structurally balanced budget as its core principle. A new feature is an exemption for defence spending: above one per cent of nominal GDP, it will no longer count towards the structural debt ceiling of 0.35 per cent of nominal GDP. In addition, a special fund of €500 billion has been created for 12 years, which is to be used specifically for infrastructure and climate protection. The decisive factor is the criterion of ‘additionality’ introduced: the funds must be used for new investments, not to relieve the core budget. Part of the funds will go to the Climate and Transformation Fund, meaning the concept of climate neutrality will be included in the Basic Law for the first time in Article 143h. To this end, the federal states have been allocated a limited debt margin of 0.35 per cent of nominal GDP.
The Foundation for the Rights of Future Generations welcomes the debt brake as an effective instrument for limiting government debt, after governments and parliaments have long ignored the long-term consequences for future generations. Now it depends on how the new rules are implemented at the federal and state levels. To this end, they must be supplemented by a legally prescribed investment quota. The FRFG will accompany this process critically and constructively.
Read our German Position Paper
"Generationengerechte Staatsverschuldung und Investitionen: Sparen für die Zukunft statt an der Zukunft!": A German Position Paper on the idea of setting aside resources and planning for what lies ahead, rather than spending or focusing on immediate or short-term concerns from November 2025.