BERLIN — Germany’s next potential chancellor, Friedrich Merz, appealed to lawmakers on Tuesday to relax the nation’s stringent debt regulations. He seeks to boost defense expenditure amid growing concerns regarding the durability of the trans-Atlantic alliance. Additionally, he proposed establishing a substantial fund for investments to revamp Germany’s deteriorating infrastructure, which would be supported through extensive borrowing.
Merz confronted a significant challenge in the outgoing parliament that convened for its final assembly to deliberate on these proposals. His center-right Union bloc is currently in the process of negotiating a ruling coalition with the center-left Social Democrats under the departing Chancellor Olaf Scholz following their victory in last month’s election.
A two-thirds majority is essential in the Bundestag, the lower house of parliament, to pass these proposals. Implementing them would necessitate amendments to Germany’s stringent self-imposed borrowing constraints, known as the “debt brake,” which limit new borrowing to only 0.35% of the annual GDP and are constitutionally enshrined. To ensure the necessary support, the potential coalition partners had to engage in discussions with the environmentalist Greens, as their backing is crucial.
The suggested package aims to exclude defense and security expenditures, which encompass intelligence services and aid to Ukraine, exceeding 1% of GDP, from these debt constraints. Furthermore, it plans to create a 500 billion-euro ($544 billion) fund, fueled by borrowing, for enhancing Germany’s infrastructure over 12 years to rejuvenate Europe’s largest yet sluggish economy. At the insistence of the Greens, 100 billion euros from this fund would be allocated for climate-related initiatives.
Merz’s approach marks a significant shift for his party, which prior to the election was critical of accruing new debt while not completely ruling out future alterations to the “debt brake.” Both the Social Democrats and the Greens have long advocated revising these borrowing traditions.
Recently, there has been an increased urgency to enhance Germany’s long-overlooked military. The current administration established a special fund of 100 billion euros for its modernization, meeting the existing NATO benchmark of allocating 2% of GDP towards defense. However, this budget is anticipated to be depleted by 2027, and there are growing doubts about the Trump administration’s commitment to its European allies. Merz stressed that Europe and Germany must fortify their defense capabilities, suggesting that a “whatever it takes” policy should also apply to defense.
On Tuesday, Merz highlighted the perils stemming from Russian President Vladimir Putin’s aggressive actions, labeling it a “war against Europe” beyond simply targeting Ukraine’s territorial sovereignty. He pointed to Russian sabotage and disinformation efforts within Europe. Merz explained that Germany’s potential governmental strategy could serve as a preliminary move towards establishing a new European defense coalition, which might include non-EU nations such as Britain and Norway.
Despite acknowledging public apprehensions regarding the expanded spending framework, Merz argued that such measures provide crucial opportunities desperately needed in the current geopolitical climate. The proposed package, however, must navigate additional bureaucratic hurdles.
The proposals were presented to the outgoing parliament rather than the newly elected one, which is scheduled to convene for the first time on March 25. This strategic timing reflects efforts to bypass opposition, as parties less receptive to the plans hold over a third of the seats in the new assembly. The far-right Alternative for Germany fervently defends the “debt brake,” whereas the Left Party, though skeptical of military expenditures, opposes it.
In the current Bundestag, the Union, along with the Social Democrats and the Greens, holds a combined total of 520 out of 733 seats, which exceeds the required two-thirds majority by 31 votes. If the package receives approval, it will face another test in the upper house of parliament, representing Germany’s 16 regional governments, on Friday. They too are anticipated to receive increased borrowing privileges.
A two-thirds majority is also required in the upper house. Initially, this seemed tentative due to parties behind the proposals only having control over 41 of the 69 upper house votes. Nevertheless, a breakthrough came on Monday when the conservative-led government coalition in Bavaria, which possesses six votes, agreed to support the initiatives.