Germany’s New Leadership Seeks to Boost Defense and Infrastructure
In a significant move, Germany’s likely next chancellor, Friedrich Merz, is calling on lawmakers to approve a sweeping package aimed at strengthening the nation’s defense capabilities and modernizing its aging infrastructure. As doubts grow about the stability of the trans-Atlantic alliance, Merz’s center-right Union bloc is urging parliament to allow unprecedented borrowing to fund these initiatives. The outgoing parliament is set to vote on these plans in its final session, marking a pivotal moment for Germany’s future under a new governing coalition.
A Shift in Defense Spending: "Whatever It Takes"
The proposed package represents a dramatic shift in Germany’s approach to defense spending. Merz, whose party previously opposed increasing debt, is now advocating for exemptions to the country’s strict "debt brake" rules. These rules, enshrined in the constitution, limit new borrowing to 0.35% of annual GDP. The new plan would allow spending on defense and security, including intelligence agencies and assistance to Ukraine, to exceed 1% of GDP. This move is driven by growing concerns about Europe’s security landscape, particularly in light of doubts about the Trump administration’s commitment to NATO allies. Merz has emphasized that Germany and Europe must act swiftly to bolster their defense capabilities, stating that “‘whatever it takes’ must also go for our defense now.”
A Massive Infrastructure Investment Fund
In addition to defense, the package includes a staggering 500 billion-euro ($544 billion) investment fund to overhaul Germany’s infrastructure over the next 12 years. This fund, also financed through borrowing, aims to revitalise Europe’s largest economy and restore growth. At the insistence of the Greens, a key coalition partner, 100 billion euros of this fund will be dedicated to climate-related initiatives. This allocation reflects the growing urgency of addressing climate change while modernising infrastructure.
Breaking with Austerity: A Political Shift
The proposed measures mark a significant departure from Germany’s long-standing commitment to fiscal austerity. Merz’s party had previously opposed relaxing the "debt brake," but the urgency of the current geopolitical and economic challenges has forced a rethink. The Social Democrats and Greens, who will join Merz’s Union bloc in the new government, have long advocated for more flexible borrowing rules to invest in critical areas. The package now before parliament is the result of intense negotiations between these parties, with the Greens playing a crucial role in shaping the climate-related provisions.
Legislative Hurdles: A Two-Thirds Majority Required
Passing these plans will require a two-thirds majority in the Bundestag, Germany’s lower house of parliament. The outgoing parliament, which is more favorable to the coalition’s plans, is being used to vote on the package rather than the newly elected chamber. In the new Bundestag, parties opposed to the measures, such as the far-right Alternative for Germany and the Left Party, hold a significant number of seats, making passage more difficult. The Union, Social Democrats, and Greens currently hold 520 of 733 seats in the outgoing parliament, giving them a slim but sufficient majority to pass the package.
The Final Hurdle: Approval from the Upper House
Even if the Bundestag approves the package, it will face another challenge in the Bundesrat, Germany’s upper house, which represents the country’s 16 state governments. The plans require a two-thirds majority in this chamber as well, and approval is not guaranteed. Much will depend on the support of Bavarian governor Markus Söder, a key ally of Merz, who must convince his junior coalition partner in the regional government to back the measures. If approved, the package will set Germany on a new path of increased defense spending and infrastructure investment, marking a significant departure from its past fiscal conservatism. The vote is seen as a defining moment for Merz’s leadership and Germany’s role in Europe and beyond.
