BERLIN – Fearing a collapse of the Western alliance under Donald Trump, Germany’s political establishment tentatively agreed to all but dismantle the country’s ‘debt brake’ with an unprecedented spending spree on defence and infrastructure that could total as much as €1 trillion over the coming decade.
The plans , if approved, would mark a stunning turn for a country renowned for its culture of parsimony, underscoring the degree of nervousness in Germany and elsewhere in Europe over the mercurial American president, who in recent days has suspended military aid to Ukraine and imposed fresh tariffs on US allies.
The parties agreed that decisions to boost Germany’s and European defence infrastructure “can no longer be postponed after the latest decisions of the American government,” Friedrich Merz, leader of the centre-right Christian Democrats, said at a press conference in Berlin.
Leaders of the Christian Democrats and the Social Democrats (SPD) agreed on the spending proposal late Tuesday, just 10 days after Germans selected a new parliament. The two parties are expected to form a coalition in the coming weeks led by Merz after his party won the election by a clear margin.
Anchors away
Though Germany’s debt brake, which is anchored in its constitution, would remain on the books, it would effectively be abolished for military expenditures because defence spending that exceeds more than 1% of Germany’s gross domestic product would be exempt form the debt calculation. That would effectively give the government carte blanche to invest in Germany’s armed forces.
In order to win SPD support for the proposal, the Christian Democrats also agreed to a €500 billion fund for investment in infrastructure over the next decade in what would amount to a massive economic stimulus programme for Germany’s flagging economy, now in its third year of recession.
The moves are breathtaking both in terms of their scale and the speed with which the two sides achieved a consensus. For the Christian Democrats, who campaigned on pledge to maintain the debt brake, the proposal signals nothing less than a complete departure from the party’s previous position on deficit spending.
That said, passage of the new debt measures is far from certain. The parties would need a two-thirds majority in parliament to win approval for the changes to the debt brake.
The rise of the far right and far left (both of which oppose additional defence spending and military aid to Ukraine) in last month’s election means the centrist parties won’t have enough votes in the coming parliament to undertake constitutional reforms. So instead of waiting, the parties have decided to try to ram the reforms through the current Bundestag, where they will continue the necessary majorities until the end of the month.
Constitutional objections
It’s a risky strategy, not least because Germany’s constitutional court could end up overturning it on the grounds the that the parties are both ignoring the will of the people and presenting the next Bundestag with a fait accompli.
Another wildcard is the Green party, whose votes would be necessary to achieve a two-thirds majority. The Greens have yet to commit to endorsing it.
The negotiators told journalists on Tuesday evening that they had decided to move forward with plans to make additional funding available even before they conclude coalition talks.
Merz said that his centre-right bloc and the SPD would call an extraordinary session of the Bundestag next week to introduce the motions.
Der Plan
The plan outlined by the parties’ leaders included three major components.
First, the leaders proposed to reform the country’s constitutional deficit limit, the so-called debt brake, which limits Germany’s structural deficit to 0.35% of GDP, to exempt defence spending above the level of 1% of GDP.
Secondly, Merz announced plans to set up a new extra-budgetary special fund, which is exempt from the debt brake and would inject an additional €500 billion into infrastructure investment over the next ten years to make Germany more productive.
“The additional expenditure on defence can only be absorbed if our economy returns to a stable growth path within the shortest possible time,” Merz said. “In addition to a radical improvement in competitive conditions, this requires investing quickly and sustainably into our infrastructure.”
Third, the parties want to loosen particularly strict debt rules for Germany’s regional states. On top of that, negotiators had “firmly” agreed to fundamentally reform the debt brake to allow states more breathing space after the official start of the new legislative term, SPD co-chairman Lars Klingbeil said.
Speed kills
The centrist parties plan to push ahead quickly.
The two parties will still have to convince other parties – both the Greens and liberal Free Democrats – to achieve a two-thirds majority.
In parallel, coalition talks will continue on Thursday and Friday with the goal of concluding them “in a timely manner,” Merz said.
He said the parties would also talk to the incumbent chancellor, Olaf Scholz, to immediately disperse an additional €3 billion in military support for Ukraine via the current budget, which Scholz had previously blocked due to funding concerns.
“We are just as unsettled and just as worried as large parts of our population, because everything that is happening these days is completely overturning old certainties,” said Markus Söder, the prime minister of the regional state of Bavaria and chairman of the Bavarian Christian Democrats (CSU), Merz’s allies.
“Today, we are not only showing that a new government can act before posts have been allocated,” Söder said. “We are sending a signal to friends and foes: Germany is here, Germany is not retreating.”
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