Germany’s parliament green lights major defence and loan package

Germany’s “government in waiting“ has cleared the final parliamentary hurdle standing in the way of its drive to increase national spending on defence. Today, the Bundestag’s upper house approved the proposal that would ease restrictions on the amount of debt the government can incur. This clears the way for the establishment of a major infrastructure fund designed to boost the EU’s largest economy.

By approving the measure, the upper chamber, which represents Germany’s 16 state governments, supported the measure proposed by the likely next chancellor, Friedrich Merz, with the required two-thirds majority, an endorsement that came on the heels of the lower house’s approval earlier this week.

Conservative leader Merz, winner of February’s election, and members of his prospective centre-left coalition, indicated that development in recent weeks pointed up the urgency of the need to strengthen and reinforce Germany’s military, given growing concerns about Washington’s  commitment to the trans-Atlantic alliance.

Because the measure requires changes to Germany’s constitutionally-enshrined “debt brake”, which restricts new borrowing to no more than 0.35% of annual gross domestic product, a two-thirds majority was needed in both houses of parliament in order to pass. This forced the nascent coalition partners to enter into negotiations with the Greens, since the environmentalist party’s votes were key to getting the requisite support. In exchange, the Greens demanded that 100 billion euros from the investment fund would be invested on climate-related activities.  

Spending on defence and security are exempted from the debt rules under the newly approved package. This includes intelligence agencies and assistance to Ukraine, of more than 1% of GDP. The envisaged 500 billion-euro fund, financed by the borrowing, is intended to bolster Germany’s infrastructure over the next 12 years and help boost its stagnant economy. Additionally, Germany’s state governments will be enabled to borrow more easily. 

The vote represents an initial success for Merz, who has yet to firmly establish a coalition between his Union bloc and the centre-left Social Democrats of departing Chancellor Olaf Scholz.