In Berlin, a legislative landmark was achieved on Friday when Germany’s prospective next administration successfully navigated the final obstacle in parliament to advance its fiscal agenda. This involved plans to increase defense expenditures by relaxing stringent debt regulations and establishing a substantial infrastructure fund to invigorate Europe’s most prominent economy. The upper house of parliament, representing Germany’s 16 state governments, gave its approval with the required two-thirds majority vote. This followed the lower house’s endorsement earlier in the week.
The initiative was put forth by likely chancellor-to-be, Friedrich Merz, leader of the conservative faction, who emerged as the victor in last month’s election. Together with his potential center-left coalition allies, Merz highlighted the increasing necessity of bolstering Germany’s long-neglected military forces, particularly in light of growing concerns regarding the United States’ commitment to NATO and the trans-Atlantic partnership.
Achieving a two-thirds majority in parliament’s two chambers was crucial, given the proposed amendments to Germany’s rigid borrowing limitations, known as the “debt brake,” which limits new borrowing to 0.35% of the national GDP and is enshrined in the constitution. This requirement led to negotiations involving the environmentalist Greens, whose support was instrumental in securing the requisite votes.
The legislation provides an exception to debt limits on expenditures in defense and security realms, including intelligence operations and aid to Ukraine, exceeding 1% of GDP. It also envisions the creation of a €500 billion ($544 billion) infrastructure fund, which would be funded through borrowed monies, to revamp Germany’s aging infrastructure over twelve years and stimulate economic growth.
Under pressure from the Greens, a portion of €100 billion from the fund is earmarked for climate-centric initiatives. Additionally, the proposal affords state governments broader leeway to engage in borrowing.
The political parties supporting the initiative hold 41 of the 69 total votes in the upper chamber of parliament. Support from 12 more votes from states governed by mixed-party coalitions helped achieve the necessary majority. Meanwhile, four state governments whose parties opposed the measure chose to abstain from voting.
Although the successful passage signifies an initial victory for Merz, considerable efforts remain as he seeks to form a governing coalition with his Union bloc and the center-left Social Democrats, led by outgoing Chancellor Olaf Scholz.
