Two Levels, Two Rulebooks: German Fiscal Politics and the EU Economic Governance Framework Reform

The 2024 reform of the EU Economic Governance Framework produced a paradoxical outcome: a set of fiscal rules that no major actor appears to want ‒ not the European Commission, not most member states, and not even Germany, the country that decisively shaped its strictest elements. This paper explains how this outcome emerged by tracing the interaction between EU-level rule-making and domestic fiscal politics in Germany. During negotiations between 2021 and 2024, the European Commission proposed a shift away from uniform numerical rules toward a more qualitative, country-specific framework based on debt sustainability analysis and negotiated expenditure paths, with the aim of easing constraints on public investment. Germany, represented by Finance Minister Christian Lindner, opposed this approach and successfully pushed for the reintroduction of binding numerical safeguards. At the EU level, this intervention was interpreted as a stable national preference for fiscal stringency and became embedded in the final design of the rules ‒ even though this consensus was collapsing in Germany. Using a two-level game framework, we show how coalition bargaining dynamics, delegation to an insulated executive actor, and the inertia of a long-standing German fiscal consensus sustained a hardline EU-level signal even as domestic preferences were fragmenting and support for debt-financed public investment was growing across the political spectrum. This dynamic was reinforced by the CDU’s stance in opposition: while already reconsidering fiscal stringency internally, it continued to oppose debt-financed investment publicly until it returned to government, and did not signal a shift in Germany’s EU-level position during the reform window. Crucially, because EU fiscal rules had historically been enforced with considerable discretion for core countries like Germany or France, there was limited immediate pressure to reconcile shifting preferences on domestic rules with the negotiating stance on EU-level rules. When Germany pivoted domestically in 2025 ‒ reforming its constitutional debt brake and adopting a large investment program ‒ the EU rules were already locked in and, on paper, constrained the use of this new fiscal space. The ensuing conflict was resolved not through enforcement or renegotiation, but through technocratic accommodation, undermining the coherence and credibility of the reformed fiscal framework.