Germany’s future government partners plan to ease debt rules to boost defense spending. Additionally, they propose a €500 billion ($533 billion) investment to upgrade infrastructure and revive the shrinking economy.
Defense Spending Becomes a Priority
Friedrich Merz, the center-right leader, is forming a coalition with the center-left Social Democrats. As part of their plan, he announced that defense spending above 1% of GDP will be exempt from borrowing limits. Moreover, he emphasized the urgency of strengthening Germany’s military.
“In view of the increasing threat situation, it is clear to us that Europe — and with Europe, the Federal Republic of Germany — must now very quickly make very big efforts, very quickly, to strengthen the defense capability of our country and the European continent,” Merz said.
Furthermore, he reaffirmed support for NATO but insisted that Germany must take more responsibility. He pointed to recent U.S. policy shifts, especially on Ukraine, as a reason to accelerate military investment.
Germany’s ‘Debt Brake’ Faces Challenges
Germany’s constitution limits new borrowing to 0.35% of GDP. However, lawmakers can suspend it only in emergencies. In fact, they paused the rule for three years during the COVID-19 pandemic. Now, changing it requires a two-thirds majority in parliament.
Unfortunately, this will be difficult. The far-right Alternative for Germany (AfD) and the hard-left Left Party control over one-third of the seats. While AfD strongly defends the debt rule, the Left Party opposes military spending.
Until the new parliament meets in late March, the outgoing government remains. Therefore, the proposed coalition must secure support from either the Greens or the pro-business Free Democrats. However, the Free Democrats have already criticized increasing debt.
A Push for Economic Reforms
Lars Klingbeil, co-leader of the Social Democrats, confirmed that both parties want to revise the debt rule by 2025. In addition, they aim to allow more investment. Merz also said the infrastructure package will encourage private investment.
Both parties still need to settle other issues before forming a coalition. Nevertheless, no other party combination can likely create a stable government.
