Special Reports

The U-turn made by Germany’s federal government in the spring, to release the grip of the debt brake and engage in a burst of borrowing to finance infrastructure and defence spending, is the biggest change to the country’s fiscal trajectory for many years.

The federal states have been running balanced budgets and their prudent fiscal management has made them some of the safest and most respected borrowers in the bond market.

Now they have explicitly been given more leeway to borrow — and there are needs to be met, with growing populations in some areas and social needs such as transport and education everywhere.

At the same time, they will receive grants from the federal government to make investments — although they will not have complete freedom on how to spend the money.

How will the Bundesländer handle the new environment? GlobalCapital gathered heads of treasury from five states, together with investment bankers, in Frankfurt in September to discuss how the Länder will use their new freedom and what effects Germany’s increased borrowing could have on the country’s capital markets.

The treasury officials also explored internationalising their investor bases, the role of sustainable finance and the potential of blockchain in the bond market. And they conclude: with freedom comes responsibility.