German Political Parties Reach Agreement on Spending Increase and Debt Rule Reform | Debt News

The plan includes a $545 billion fund for infrastructure spending.

Germany’s likely next chancellor, Friedrich Merz, has announced a deal to significantly overhaul the country’s debt rules, allowing for a surge in defense and security spending as well as 500 billion euros ($545 billion) in infrastructure investments over the next 12 years.

Merz’s conservative party and their prospective Social Democratic coalition partners reached an agreement with the Greens on Friday to exempt defense and security spending—including civil protection, intelligence, and “aid to countries under illegal attack”—exceeding 1 percent of gross domestic product (GDP) from the nation’s constitutionally mandated debt brake.

“Germany is back,” Merz said, emphasizing that the agreement signals Berlin’s readiness to defend itself to both allies and adversaries.

The debt brake has been a cornerstone of Germany’s fiscal policy since its introduction by former Chancellor Angela Merkel in 2009, limiting new borrowing to 0.35 percent of GDP.

Economists and investors have long urged Germany to reform its debt brake to unlock investments and support an economy that has contracted for the past two years.

Friday’s deal comes as US President Donald Trump shifts away from supporting Ukraine in its fight against Russia’s invasion amid strained relations between Washington and the European Union. Concerns over the future direction of US foreign policy have intensified calls for Germany, long reliant on the US security umbrella, to rapidly increase its military spending in light of Russia’s growing aggression.

“Any further delay” in boosting defense spending “would be irresponsible,” Merz stated during a parliamentary debate on Thursday.

“In view of the alarming security situation in Europe in every respect and the growing economic challenges in our country, far-reaching decisions … cannot be postponed any longer,” he told lawmakers.

However, the agreement follows days of often contentious debate, during which members of the Greens threatened to withhold their support, citing insufficient environmental measures in the plan.

Their votes were crucial to achieving the two-thirds majority in the German parliament required to amend the debt brake.

Merz—whose conservatives came in first in February’s elections—said that after negotiations with the Greens, it was agreed that 100 billion euros ($108 billion) of the infrastructure fund would be allocated to climate protection measures.

The incoming government is eager to secure approval for the spending plans before the newly elected parliament convenes at the end of March.

In the new chamber, the far-right Alternative for Germany and the far-left Left party, both of which oppose the plans, could potentially block the measures.

Both parties have filed legal challenges against the spending plans with the Federal Constitutional Court, arguing there will be insufficient time for consultations.