Germany’s next prime minister, Friedrich Merz, announced on Friday that he had secured his votes to allow large-scale new government spending, including clearing the path of a spectacular shift in Germany’s strategic and fiscal policy before taking office.
The deal should allow Merz to pass numerous measures in Congress next week. He claimed in response to President Trump’s move to regain America’s security guarantees in Europe.
This includes what the party leader called a key investment in Germany’s competitiveness and efforts to reduce fossil fuel emissions to combat global warming. And it has long ruled Germany, but in recent years breathed new life into the union of the central left and center right parties that have died in a new era of populism, losing votes to the far left and far right.
The measure would raise Germany’s sacred restrictions on government borrowing when Germany applies to military spending. All expenditures exceeding 1% of the domestic gross domestic product are exempt from these restrictions, and “defense” is broadly defined to include intelligence reporting expenditures, information security, and more.
In effect, it would be possible for Germany to spend as much as possible viable as it could be borrowed to rebuild its troops.
“There is no longer a shortage of financial resources to protect freedom and peace on our continent,” Merz added: “Germany is back. Germany is making a great contribution to protecting Europe’s freedom and peace.”
The deal was a daily product of negotiations between Merz’s central right Christian Democrat, the central left Social Democrat, and the central left Green Party. Green was the final holdout and their support was announced on Friday.
Lars Klingbale, one of the leaders of the Social Democrats, called the agreement “an important signal to Ukraine.” It is an important signal for Vladimir Putin and an important signal for Donald Trump. ”
Green Party posted on X that the deal would soon provide Ukraine with 3 billion euros of support, and that the deal would “finally take future challenges seriously.”
Long-standing German dislike for large-scale government borrowing became the country’s signature economic policy in the aftermath of the 2008 financial crisis. However, years of constrained spending contributed to a long-term decline in the quality of the country’s infrastructure, hampering economic growth.
Equally important, Germany’s inability to spend has hindered its role as a stronger leadership role in an era of new security challenges to Europe, such as the aggressive and expanding Russian threat at European gateways and the withdrawal of America from military commitments to the continent.
Everything could change now, just as Merz and others have to.
“The next federal government has little choice but to make large public investments in its defense capabilities,” an economist at the Deutsche Bank Institute wrote this week. “In addition to the increased traditional defence spending, this also requires investment in the country’s critical infrastructure.”
After Russia invaded Ukraine three years ago, the current prime minister, Social Democrat Olaf Scholz, called for a strategic contest over military spending. The country borrowed more to defend, but its progress was still relatively slow. During the February election campaign, Merz and his central-right Christian Democrats said they wanted more money to defend, but would find other savings in the budget to offset that.
Merz cited the threat of suppressing those promises shortly after his party first ended with the vote, pulling back the American security umbrella for Europe by President Trump and his administration. He joined in negotiations to form a government with the Social Democrats, and they quickly agreed to a transaction to dramatically increase borrowing and spending.
But ultimately, he had to win support from Green to solidify the two-thirds of the majority needed to change the German debt limit. The negotiations proceeded with a quick clip, especially with German standards. Because Merz and his partners only have a vote to approve the current legislative action, which will be dissolved at the end of the month.
To receive support from the Greens and the Social Democrats, the agreement includes a large new domestic spending fund.
The fund, funded with borrowed money excluded from constitutional debt restrictions, will spend 500 billion euros (approximately $54.4 billion) over the next few decades to improve its aging infrastructure.
Lawmakers will decide how to use the money exactly, but under an agreement between Merz and Greens, it will be allocated from 100 billion euros for existing funds that will deal with climate change.
It was a major demand for the Greens, threatening to block Merz’s action earlier this week. Greens also secured an agreement that funds from the Infrastructure Fund will only be used for new projects to strengthen the economy and climate, rather than existing projects.
Merz called the deal “a good outcome that is acceptable to all parties involved.”
He and Klingvale proposed that their full party membership will take action back next week.
The move could face legal challenges from the far left and far right parties. This raises doubts the constitutionality of moving very quickly to strike deals through lambduck sessions.
