Germany's £428bn debt gamble: 'Ghost MPs' plot sparks 'political timebomb’ warning

Friedrich Merz wants to reform the debt brake to boost defence spending (Image: GETTY)

Germany is on the brink of a financial gamble worth £428bn, as politicians prepare to sidestep democratic norms to push through a controversial constitutional change, a UK-based banking expert has claimed.

And Bob Lyddon has branded the plan, which will allow the government to lift the so-called Debt Brake and take on an additional €500 billion (£428bn) in borrowing, a “political timebomb”, warning it could trigger an “economic earthquake”.

The key vote is set to take place on March 18, but in an extraordinary move, Germany’s outgoing Bundestag will hold it rather than the newly elected one.

This means 86 MPs from the Social Democratic Party (SPD), who lost their seats in recent elections, will still be able to cast votes - effectively acting as “ghost MPs” to push through the measure before they are officially removed from office.

Mr Lyddon, founder of Lyddon Consulting Services, has slammed the move, suggesting that it undermines democratic legitimacy.

Outgoing German Chancellor Olaf Scholz (Image: Getty)

He said: “They are using MPs who have already been voted out to change the constitution. If this happened anywhere else, the EU would be up in arms. Instead, Brussels is cheering it on.”

The SPD, led by current Chancellor Olaf Scholz, suffered a demoralising defeat in recent parliamentary elections. Nevertheless, the party is teaming up with the victorious centre-right CDU/CSU to form a coalition government.

Crucially, Mr Lyddon pointed out, the two parties now agree on a policy which was bitterly contested just days ago: the lifting of the Debt Brake, a constitutional mechanism designed to prevent reckless borrowing.

If passed, the change will add another 10-12% to Germany’s already substantial national debt, taking it from €2.7 trillion to over €3.2 trillion, Mr Lyddon argued.

The AfD's Alice Weidel (Image: Getty)

The timing of the vote is key. Under the newly elected Bundestag, the proposed constitutional amendment would require the support of the left-wing Linke party, which has vowed to block it unless defence spending is scrapped from the budget.

Alternatively, the coalition would need backing from the right-wing Alternative for Germany (AfD), which is firmly against the measure. But by forcing the vote through the outgoing Bundestag, the CDU/CSU and SPD can bypass such roadblocks - provided they secure the support of the Greens, who are expected to back the plan in exchange for political concessions.

A deal struck on Friday loosened the stringent rules to allow a €500 billion increase in state borrowing aimed at enhancing infrastructure, defence, and economic growth. The agreement includes exempting specific defence expenditures from national debt limits and is set for a parliamentary vote next week.

However, Mr Lyddon believes the strategy sets a dangerous precedent.

He said: “This is a political timebomb leading to an economic earthquake. Germany is effectively rigging its own system to allow borrowing on a scale never seen before. Once you remove constitutional safeguards like the Debt Brake, the floodgates are open.”

The SPD suffered a mauling in the recent elections (Image: Getty)

The Debt Brake was introduced in 2009 in response to the financial crisis. It limits the government’s structural deficit to 0.35 percent of GDP and has kept Germany’s debt-to-GDP ratio relatively stable at around 60 percent. Critics argue that lifting it will trigger long-term instability, with taxpayers ultimately footing the bill.

The move also raised alarm bells beyond Germany, Mr Lyddon said.

With the eurozone still grappling with inflationary pressures, some economists fear that a surge in German borrowing could weaken confidence in European markets.

Mr Lyddon added: “If Germany starts borrowing on this scale, it gives the green light for other eurozone nations to do the same. The EU’s entire financial system is based on the idea that Germany is the responsible one - but what happens when Germany stops playing by the rules?”

The political parallels with past authoritarian tactics are not lost on critics. Mr Lyddon drew a stark historical comparison: “We’ve seen this kind of thing before. In 1933, the Nazis used emergency measures to prevent elected Communist Party MPs from taking their seats.

"Now, in 2024, we have a government using defeated MPs to push through a constitutional change before the new Bundestag can stop it. It’s a complete disregard for democracy.”

German Chancellor Olaf Scholz loses confidence vote

The plan’s supporters insist that lifting the Debt Brake is necessary to fund vital infrastructure, energy projects, and defence commitments. Opponents, however, argue that it is reckless and undemocratic and will saddle future generations with insurmountable debt.

Friedrich Merz, poised to replace Mr Scholz as Germany's leader, has advocated for reforming the country's stringent "debt brake" to bolster defence spending and enhance Europe's self-defence capabilities.

In light of reduced US military support for Europe, Mr Merz emphasised the urgency of this initiative, saying: "Germany and Europe must quickly strengthen their defence capabilities.”

AfD parliamentary group leaders Tino Chrupalla and Alice Weidel have vowed to “ensure that any decision taken serves the interests of the German citizens and is made in accordance with the constitution.”

Ms Weidel criticised Mr Merz for wanting to take on “almost one trillion euros of new debt at the expense of the taxpayers.”

Jan van Aken, co-chairman of Die Linke, said: "How absurd is this? A week ago, 50 million people went to the polls, elected a new Bundestag, and then they [CDU/CSU and SPD] come along and say that the majorities don’t suit us, and we will quickly use the old Bundestag to make a decision. I don’t think that’s very democratic."