Germany's 'debt brake' rule helped collapse its government — and it could be about to change

When the German government collapsed earlier this month, clashes within the former ruling coalition about economic and budget policy were widely cited as a key factor — with the country's debt brake playing a central role.

Former Finance Minister Christian Lindner, whose sacking was the tipping point for the ruling coalition breaking up, told press in early November that German Chancellor Olaf Scholz had demanded a pause to the debt brake, a request he could not accept.

Scholz had fired Lindner that same day, saying that the former finance minister did not seem willing to cooperate on Scholz' suggestions for Germany's 2025 budget. Scholz claimed that his plans incorporated the ideas of Lindner's party, but also clearly demonstrated the need for more financial leeway.

Tensions about fiscal policy had long been brewing, heightened by ongoing concerns about the state of the country's economy, which has been teetering on the edge of recession for several quarters. A second reading of third-quarter GDP released Friday indicated 0.1% growth from the previous quarter.

And so the three-year-old coalition between Scholz' social democratic party (SPD), the Green party and Lindner's free democratic party (FDP) fell apart. Germany is now facing early elections in February.

But what is the debt brake and why is it so contentious?

Germany's debt brake, or 'Schuldenbremse,' is a fiscal rule that forms part of the German constitution. The debt brake limits how much debt the government can take on, and dictates that the size of the federal government's structural budget deficit must not exceed 0.35% of the country's annual gross domestic product.

It was agreed upon in 2009 in response to the financial crisis of 2008 and the sky-high debt the