The plan calls for a $545bn fund for infrastructure spending.
Germany’s likely next chancellor, Friedrich Merz, has announced a deal to drastically overhaul the country’s debt rules to allow a boom in defence and security spending as well as 500 billion euros ($545bn) in infrastructure investment in the next 12 years.
Merz’s conservatives and their prospective Social Democratic coalition partners reached an agreement with the Greens party on Friday to exempt spending above 1 percent of gross domestic product (GDP) on defence and security – including civil protection, intelligence and “aid to countries under illegal attack” – from the nation’s constitutionally enshrined debt brake.
“Germany is back,” Merz said, adding that the agreement signalled to partners and adversaries Berlin’s willingness to defend itself.
The debt brake has been the hallmark of Berlin’s fiscal policy since it was introduced by former Chancellor Angela Merkel in 2009 and limited new borrowing to 0.35 percent of GDP.
Economists and investors have long urged Germany to reform its debt brake to free up investment and support an economy that has contracted for the past two years.
Friday’s deal was reached as US President Donald Trump pivots away from supporting Ukraine in its fight to repel Russia’s invasion amid strains in ties between Washington and the European Union. Concerns over the future direction of US foreign policy have fuelled calls for Germany, long dependent on the US security umbrella, to quickly ramp up its military funding amid signs of increasing Russian aggression.
“Any further delay” in boosting [defence] spending “would be irresponsible”, Merz said during a parliamentary debate on Thursday.
“In view of the alarming security situation in Europe in every respect and the growing economic challenges in our country, far-reaching decisions … cannot be postponed any longer,” he told lawmakers.
But Friday’s deal follows several days of often acrimonious debate, during which members of the Greens had threatened to withhold their support, citing insufficient action on the environment in the plan.
Their votes were necessary to achieve the two-thirds majority in the German parliament needed to modify the debt brake.
Merz – whose conservatives finished first in February elections – said that after talks with the Greens, it had been agreed that 100 billion euros ($108bn) of the infrastructure fund would be dedicated to climate protection measures.
His incoming government is eager to get the spending plans approved before the newly elected parliament convenes at the end of March.
In the new chamber, the far-right Alternative for Germany and the far-left Left party, which oppose the plans, would have the numbers to block the measures.
Both parties have filed legal challenges against the spending plans at the Federal Constitutional Court, arguing there will be insufficient time for consultations.