Likely next German govt parties agree debt rules bypass for defence and infrastructure, climate focus unclear

Germany’s likely next coalition government parties have reached a deal to unlock hundreds of billions of euros for both defence and infrastructure in sectors such as transport, hospitals, and energy through new debt by reforming the country’s state debt rules and introducing a special fund.

“Our country is running on wear and tear, and that is why it was important for us to invest, to invest massively, so that our country functions better again,” said Lars Klingbeil, co-leader of the Social Democrats (SPD). “A future government must stop the deterioration of our country,” he said, adding that future defence spending “must not come at the expense of investments in the future viability of our country”.

Security and military spending are in the focus of the agreement: “In view of the threats to our freedom and peace on our continent, whatever it takes must now also apply to our defence,” said Friedrich Merz, leader of the conservative Christian Democrat/Christian Social Union (CDU/CSU) alliance and likely next German chancellor. US president Donald Trump’s upending of decades of transatlantic relations and the wider geopolitical order has hastened the push to make big spending decisions.

Merz’s conservatives and the SPD of outgoing chancellor Olaf Scholz – who are in talks to form the next coalition government after last month’s snap election – want to change the constitution  in the current legislative period, which ends in late March. The changes would have to be agreed by both legislative chambers, and require the support of lawmakers from the Green Party to reach the necessary two-thirds majority. Reaching such a majority once the new parliament is in place would be more difficult, since the far-right party Alternative for Germany (AfD) and the Left Party substantially increased their number of seats and are both critical of the plans, even if for different reasons.

If agreed in parliament, the reforms would mark a major shift in German spending policy, putting a higher priority on modernising infrastructure and military spending than on keeping within self-imposed borrowing limits. Economists have long called for a fundamental reform of the so-called  debt brake, which stipulates that new debt must not exceed 0.35 percent of annual economic output, to allow for necessary investments as Germany’s economy moves towards climate neutrality.

Merz and his Conservatives during the election campaign had opposed the idea of taking on massive new debt and instead called for fiscal discipline and spending cuts.