Germany’s parliament has voted in favour of unleashing historic levels of spending to boost the military of Europe’s biggest economy and inject its infrastructure with investments worth hundreds of billions of euros.
Incoming conservative chancellor Friedrich Merz along with the Social Democrats (SPD), his likely coalition partners after last month’s election, led the drive for the creation of a €500bn fund and relaxation of its constitutionally protected debt rules. The parties secured the last-minute backing of the Greens, which was needed to push the plans through the outgoing parliament.
The package received the backing on Tuesday of 513 MPs, with 207 voting against, and no abstentions. The minimum required was 489 votes. It has been hailed by some as a necessary measure to give Germany the fiscal heft it needs to ensure national and European security, but by others as a “highly risky bet” that will be a burden for generations to come.
Merz told MPs the package was mainly motivated by “Putin’s war of aggression against Europe”, listing a range of suspected Russian sabotage “taking place every day” against Germany. He said these included attacks on critical infrastructure, arson attacks, spying and disinformation campaigns, as well as broader “attempts to divide and marginalise the European Union”.
Acknowledging that his funding plans were viewed with concern by many who feared the burden of debt, Merz said it was time to acknowledge the new era in which Germany found itself, not least having to be independent from the US.
“We understand the worries, we understand the criticism,” he said, but added: “We have, for at least a decade, felt a false sense of security.” Germany had now to face a “paradigm shift”, which Merz said required “us to rebuild our defence capabilities, in part from scratch”.
Markets rose on Tuesday even before the vote had taken place, in anticipation that the plans would boost growth across Germany and the wider eurozone. The euro reached its highest level in more than five months.
Investors have said the fiscal injection could help Europe’s largest economy emerge from two consecutive years of negative growth. However, they have also warned the package needs to be accompanied by widespread reforms, including boosting productive capacity, reducing bureaucracy, encouraging Germans to work longer and tackling high energy bills, which are prompting companies to leave Germany.
Having passed the Bundestag, the lower house of parliament, the legislation will on Friday go to the Bundesrat, the upper house, which represents the governments of Germany’s 16 federal states.
The conservatives and SPD believed they needed to act quickly to pass the legislation in the current parliament because it required changes to the constitution and therefore a majority of at least two-thirds of MPs to back it. In the new Bundestag, due to convene on 25 March, it would have been likely to face opposition from the far-right AfD and far-left Die Linke, who together have a “blocking minority”.
But the very fact that it was shoehorned through the outgoing parliament within a matter of days, sparked the ire of opposition parties.
Alice Weidel, co-leader of the anti-immigrant, Kremlin-friendly, Alternative für Deutschland, which had lodged a legal complaint with the country’s highest court in the hope of stopping the legislation’s passage through the existing parliament, struck a note of fury, calling the package “election fraud worse than anything I’ve ever seen in the history of the Federal Republic of Germany”.
Weidel, a former investment banker, predicted that Germany’s resulting debt burden would cause a downgrading of its triple-A fiscal stability rating, which would send a ripple effect across the eurozone, adding that it would “blow up in the face” of young people and taxpayers who would face the consequences for years to come.
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Britta Haßelmann, parliamentary co-leader of the Greens, who reluctantly backed the legislation after securing guarantees that €100bn (£84bn) of the funds destined for infrastructure would be allocated for climate and economic transformation investments, poured scorn on Merz for having “rejected every idea regarding reforming the ‘debt brake’” in the past, “with such arrogance and populism it made one sick”.
But, she said, her party recognised the necessity to free up funds at such a crucial time, and was therefore “glad we’re making this decision”.
Robin Winkler, chief German economist at Deutsche Bank, called the decision to reform the debt brake “a historic fiscal regime shift” comparing it to the transfers made over German reunification almost 35 years ago. But for it to be a success the next government, he urged, “will need to deliver structural reforms to turn this … into sustainable growth”.
At the centre of the reforms is Germany’s so-called debt brake, imposed under the government of Angela Merkel after the 2008 global financial crisis to ensure debt was controlled for future generations. The rules have long since been criticised by experts who say they are outdated and too rigid particularly in an era of fast-evolving geopolitical circumstances.
Merz faced fierce criticism before and during the four-hour debate. Opponents said he had voiced his strong commitment to the debt brake during the election campaign, only to have changed his mind within days of winning on 23 February. Merz has justified this by citing the “rapidly changing situation”, in particular, the clash between the US president, Donald Trump, and his Ukraine counterpart, Volodymyr Zelenskyy.