German parliament passes historic spending reforms

 

German parliament passes historic spending reforms

 

The vote to unleash borrowing for the military and Ukraine is a “first major step towards a new European defense community,” says incoming chancellor Friedrich Merz.

 

March 18, 2025 4:24 pm CET

By Nette Nöstlinger

https://www.politico.eu/article/germany-parliament-spending-reforms-defense-military-infrastructure-friedrich-merz/

 

BERLIN — German lawmakers passed a historic package of constitutional reforms on Tuesday that will unleash hundreds of billions of euros in new borrowing to bolster the country’s enervated military and aging infrastructure.

 

Incoming chancellor Friedrich Merz’s conservatives supported the package of measures along with lawmakers from the center-left Social Democratic Party (SPD) and the Greens. Altogether, 513 of 720 lawmakers who cast votes in Germany’s Bundestag, or lower house of parliament, backed the bill. Merz needed a two-thirds majority to pass the necessary amendments to the constitution.

 

The vote marks a U-turn in the fiscal policy of the EU’s biggest economy after years of self-imposed austerity under a debt brake, which limits the structural budget deficit to 0.35 percent of gross domestic product, except in emergencies. The measures are set to take effect as Berlin’s incoming coalition — which is likely to consist of Merz’s conservatives and the SPD — looks to shore up Europe’s defenses in the face of Russia’s grinding advance in Ukraine and a weakening transatlantic alliance.

 

“Such debt can only be justified under very specific circumstances,” Merz, the leader of the center-right Christian Democratic Union (CDU), said Tuesday.  “The circumstances are determined above all by [Vladimir] Putin’s war of aggression against Europe.”

 

Under the package of measures, defense spending exceeding one percent of GDP is to be exempted from the strictures of the country’s constitutional debt brake. Aid for Ukraine is also to be included in that exemption, potentially unlocking billions in aid for the embattled country.

 

“The decision we are taking today,” Merz said, “can therefore be nothing less than the first major step towards a new European defense community.”

 

 

Merz said non-EU countries like the UK and Norway should play a major part in that community while also arguing that defense spending be used to prop up the European defense industry. “Reliable and predictable orders should go to European manufacturers whenever possible,” he said.

 

In addition, a special fund of €500 billion will be set up to boost Germany’s ailing economy, with one-fifth of that funding to be committed to fighting climate change — a key demand of the Greens. Strict rules on borrowing by Germany’s 16 states are to be relaxed, freeing up billions more for local infrastructure projects.

 

The adoption of the package is a major victory for the next coalition, helping ensure financial stability over the next years — something the SPD-led coalition government lacked, leading to its collapse in November.

 

Lars Klingbeil, one of the leaders of the SPD referred to Tuesday’s vote as “the result of a debate that has been going on for years” which, he said, “led to a blockade of our country and has made government work more difficult.”

 

Both the SPD and the conservatives scrambled to secure the support of the Greens, whose votes they needed to secure a two-thirds majority. After days of negotiations and concessions by Merz on climate and Ukraine aid, the party agreed to support the constitutional changes.

 

Merz needed to move fast to secure the reforms because, in the next parliament, set to convene by March 25, the Kremlin-friendly, far-right Alternative for Germany (AfD) party and the Left party, which opposes military spending, will have the strength to block constitutional amendments to enable more defense expenditure.

 

On Friday, the Bundesrat — which represents Germany’s states — is expected to adopt the package in a final legislative step.

 

The biggest challenge for Merz may well involve convincing his own base of the merits of his about-face on fiscal policy. He has already come under fire from some conservatives for giving in to too many of the SPD’s spending demands. That criticism may complicate coalition talks between conservatives and the SPD in the coming weeks.

 

The AfD — set to become Germany’s biggest opposition party when the new Bundestag convenes — is already upping the pressure on Merz.

 

“What do you actually stand for, Mr. Merz?" one of the AfD’s leaders, Tino Chrupalla, said in parliament on Tuesday. “You have by now had the mRNA of the SPD implanted in you.”