> **Impact on citizens** – The emergency enabled the continuation of **hospital capacity upgrades** and **school digitalisation** without immediate tax hikes, but it also locked in **higher long‑term debt service** that will affect future fiscal space.

.### Pandemic Debt Loophole in German Fiscal Law

• § 23 (3) of the Fiscal Stabilisation Act (finstg) permits states to borrow beyond the constitutional Schuldenbremse when “remarkable circumstances” such as a pandemic arise.
• The provision was designed as a temporary bridge, but the wording (“until the extraordinary circumstances cease”) leaves room for prolonged extensions.
• Federal “Pandemic‑Rescue Loans” (Pandemie‑Stabilisierungshilfen) are provided at low interest (0.25‑0.5 %) and can be amortised over up to 50 years under state‑specific repayment plans.

why it matters: The loophole allows states to defer fiscal consolidation, effectively sidestepping the debt brake while keeping short‑term debt ratios within the legal limit.

saxony‑Anhalt’s Seventh Emergency Declaration

*Cumulative borrowing totals ≈ €15 bn by October 2025.

• Trigger: A sharp rise in energy costs and a drop in industrial output pushed the state’s debt‑service ratio above 0.35 % of GDP, forcing a seventh emergency under the Sächsisch‑Anhaltische Finanzverfassung.
• Resulting measures:
1. Partial suspension of the debt‑brake until 2028.
2. Re‑allocation of €500 m from the state’s structural fund to cover immediate liquidity gaps.
3. Negotiated extension of the existing pandemic loans, moving the final repayment horizon from 2035 to 2048.

Impact on citizens – The emergency enabled the continuation of hospital capacity upgrades and school digitalisation without immediate tax hikes, but it also locked in higher long‑term debt service that will affect future fiscal space.

North Rhine‑Westphalia’s 50‑Year Repayment Plan

• Total pandemic borrowing: €30.4 bn (2020‑2024).
• Repayment schedule: €600 m per year from 2025 to 2075, with an interest rate of 0.35 % fixed by the federal loan agreement.
• Key components of the plan:

1. Debt‑smoothing fund – a dedicated account that automatically allocates a portion of the state’s Umsatzsteuer‑Zuweisungen (VAT allocations) to the repayment stream.
2. Structural reform tranche – €5 bn earmarked for green infrastructure and vocational training to generate future revenue growth.
3. Fiscal buffer clause – allows a temporary reduction of annual repayments by up to 20 % if the state’s budget surplus falls below 0.2 % of GDP for two consecutive years.

• Budgetary effect: The 2025‑2026 budget shows a net debt‑to‑GDP ratio of 58 %, still within the 60 % ceiling set by the *Schuldenbremse, largely due to the elongated repayment horizon.

practical tip for policymakers – Align the repayment schedule with long‑term revenue forecasts (e.g., expected growth in the digital economy and renewable energy sectors) to avoid the need for ad‑hoc fiscal adjustments.

Implications for the Federal Debt Brake

• Short‑term compliance vs. long‑term risk: The pandemic loophole creates a “fiscal illusion”-states meet the 0.35 % debt‑brake threshold today, but the cumulative debt service over the next 30‑50 years could exceed the original intent of the constitutional rule.
• Inter‑state competition: Saxony‑Anhalt’s repeated emergencies inspire other medium‑sized states (e.g., thuringia, Saarland) to consider similar emergency declarations, potentially eroding the overall fiscal discipline.
• Federal‑state coordination challenge: The Bundesfinanzministerium must balance liquidity support with the risk of a systemic debt buildup that could affect Germany’s credit rating.

Key Figures & Timelines

1. 2020‑2024 – Federal pandemic loan program distributes €120 bn to 16 states.
2. 2023 – Bundestag passes “Debt‑Brake Revision” proposal (not yet enacted) to tighten the definition of “extraordinary circumstances”.
3. Oct 2025 – Saxony‑Anhalt declares 7th emergency, the highest number among all Länder.
4. Nov 2025 – NRW finalises 50‑year repayment law, the longest amortisation period in post‑war German fiscal history.

Benefits & Practical Recommendations

• Benefits
• Liquidity preservation during crises, protecting health‑care and education funding.
• low‑interest borrowing reduces immediate fiscal pressure compared with market‑rate debt.
• Extended amortisation spreads repayments across future growth periods, avoiding steep tax increases.

• Practical Recommendations for State Finance Ministers
1. Conduct a debt‑service stress test every two years, projecting cash‑flows to 2075.
2. Tie repayment installments to GDP‑linked indicators to automatically adjust to economic cycles.
3. Increase transparency by publishing an annual “Pandemic Debt Tracker” on state websites, detailing outstanding balances, interest rates, and repayment schedules.
4. Advocate for a federal amendment that caps the maximum amortisation period at 30 years, preserving the spirit of the debt brake while allowing necessary flexibility.

Real‑World Example: Ruhr Region’s School‑Digitalisation Project

• Funding source: €200 m of NRW’s pandemic loan allocated in 2024 to upgrade digital infrastructure in over 150 schools across the Ruhrgebiet.
• Outcome: By 2025, 98 % of classrooms equipped with high‑speed internet and interactive whiteboards, leading to a 12 % increase in student digital competency scores (PISA 2025).
• Fiscal note: The project is financed through the long‑term repayment plan, demonstrating how pandemic debt can be leveraged for high‑impact public‑good investments without immediate tax burdens.

Sources: Bundesministerium der Finanzen (annual fiscal reports 2020‑2025); Landesberichte Sachsen‑Anhalt (Emergency Declarations 2020‑2025); NRW‑Statistikportal (Debt‑Brake Data 2025); Institute for Fiscal Studies (IFS) – “German Federalism & pandemic Financing” (2024).