Germany’s future coalition partners to relax debt rules to boost defence budget
Guardian1 day ago
Germany to Relax Debt Brake, Boost Defense Spending
Above: Markus Söder, leader of the CSU, Saskia Eskeen, co-chair of the SPD, Friedrich Merz, leader of the CDU and Germany's likely next chancellor, and Lars Klingbeil, co-chair of the SPD, arrive at the press conference in Berlin on March 4, 2025. Image copyright: Kay Nietfeld/picture alliance/Contributor via Getty Images
The Facts
Germany's likely next chancellor Friedrich Merz, of the conservative CDU/CSU bloc, announced on Tuesday that an agreement has been reached with his prospective coalition partner, the Social Democrats, to put forward plans to relax the country's constitutional debt brake to boost defense and infrastructure spending.
The fiscal expansion proposal to be presented before the Bundestag next week would reform the rules to exempt any defense spending that exceeds 1% of GDP from the 0.35% limit, create an off-budget €500B infrastructure fund that would run over 10 years, and allow its states to take on debt through up to 0.35% of their GDP.
Germany enshrined the debt brake in its Basic Law in 2009, specifically in Article 109, paragraph 3, on budget management in the Federation and the Länder, and in Article 115 on limits of borrowing, against the backdrop of the 2008 global financial crisis.
The Spin
Pro-establishment narrative
This is a much-welcomed fiscal U-turn that represents a necessary and bold response to transform the outlook of the country's infrastructure and economy as well as of European defense — and markets' response illustrates that. Germany has been on the edge of a technical recession for years now, it's about time for a fiscal stimulus.
Establishment-critical narrative
It's certain that Germany must increase military spending and restructure its economy — and it's indeed rational to stop being the only fiscally responsible country in the EU — but this shift will hurt eurozone as its anchor is on track to join the high-debt club. Yields on German debt are already on the rise, and trouble is coming for Europe.