Stay informed with free updates
Simply sign up at German policy Myft Digest – delivered directly to your box.
The Chancellor to be Friedrich Merz has agreed with a deal with his potential coalition partner to inject hundreds of billions into additional funds in the German army and infrastructure, in a “fiscal seafood” created to revive and re-armed Europe’s largest economy.
In a announcement that came just over a week after he won the federal election, Merz said Tuesday that his Democratic Christian Union (CDU), his Bavarian sister party and the Social Democratic rival (SPD) will jointly submit a draft law next week to relax the strict rules of borrowing.
A provision would exclude protection costs over 1 percent of GDP from the “debt brake” that captures government borrowing, allowing Germany to collect an unlimited amount of debt to finance its armed forces and provide military assistance to Ukraine.
Future coalition partners will introduce another constitutional change to create a 500BN € infrastructure fund, which will last over 10 years. They are also planning to release debt rules for states.
German fiscal stimulus has highlighted a sense of emergency in Europe, driven by US President Donald Trump’s threat to release American guarantees that have long supported the security of the continent.
“This is a change of fiscal sea for Germany,” said Holger Schmieding, the economist chief in Berenberg. “Merz and his coalition to be growing up on the occasion.”
Echoing Mario Draghi’s promise to protect the Eurozone in 2012 when he was President of the European Central Bank, Merz said Germany would do “whatever he needs to” defend “threats to freedom and peace” in Europe.
Standing with the party leaders from the SPD and the Christian Social Union of Bavaria at a press conference in Berlin, Merz said the package will also increase the German flag economy, which has suffered from two years after decades under investments in railroads, bridges and communication infrastructure.
“Extra protection costs can only face if our economy turns into sustainable growth within a very short period of time.. This requires rapid and sustainable investment in our infrastructure.”
The bills need a two-thirds majority in Parliament to pass, which means that Merz will have to rebuild the outgoing Bundestag that was elected in 2021 and ensure Greens support.
The plan marks a stunning shift in Germany’s traditional conservative attitude in fiscal stimulus. Berlin included debt brake in its 2009 Constitution, which limits government borrowing and maintains structural deficit to 0.35 percent of GDP.
Defense specialists and economists welcomed the decisive step of Merz.
Jana Puglieri, a senior policy associate at the European Council on Foreign Relations, said: “It is a major investment in Germany’s ability to act – and potentially in Europe (ability to act) if Germany finds its way to be a European constructive leader.”
Liana Fix, a friend for Europe at the Washington -based Foreign Relations Council, said the move scored a “real Time comes back ” -Awwaming moment-The outgoing Chancellor Olaf Scholz had promised while discovering a € 100 billion protection fund in the wake of Russia’s full-scale occupation in Ukraine in 2022.
Merz Conservative CDU/CSU had opposed debt brake reforms before February 23rd elections. However, hours after the first came to the nationwide voting, the determined transatlantic stated that Europe had to reach “independence” from Washington given that Trump appeared “mostly indifferent” to Europe’s fate.
Jens Südecum, a professor of international economy at Düsseldorf’s Heinrich Heinrich Hein University who had asked the boredom to reform the debt brake, described the announcement as “a general game change”.
Merz has accelerated the coalition talks with the SPD after Trump publicly advised Ukraine President Volodymyr Zelenskyy in the White House last week. The US president’s decision this week to suspend military aid to Kyiv, which amazed the Ukraine authorities and their European allies, added only the sense of emergency.
Excluding debt rules protection expenses “is a reasonable approach that did not seem possible just a few days ago,” Henning Meyer, a professor at Tübingen University who is close to SPD. Protection “does not borrow to yourself for a special specified fund. You just don’t know how much you will need and in which time frame,” he said.
Puglierin said Merz was “taking a great personal danger” by moving so quickly from his campaign statements.
“He is doing this only so fast and so firmly because he really sees an absolute urgent situation for Germany and Europe,” she said. “Without the Actions of the Trump administration in recent weeks, that would not be possible.”
The preliminary agreement paves the way for a broader coalition agreement with the SPD. Germany’s future Chancellor wants to use the outgoing Parliament’s supermailed to pass constitutional changes because his government would probably be blocked in the other parliament from the far -right alternative to Germany and the remote links.
The current parliament may meet until March 25, before young MPs can take their seats.
The Merz Agreement with the SPD came after the European Commission described a joint debt instrument on Tuesday that would enable member states to finance the purchase of military equipment.
