Germany's Merz advocates major boost in defence and infrastructure spending

Friedrich Merz, the likely next Chancellor of Germany, proposed an unprecedented spending plan involving billions of euros to boost defence and infrastructure. Speaking on Tuesday, Merz outlined the initiative, which will involve his centre-right CDU/CSU party and the centre-left SPD in a coalition government. The proposal has been accelerated by recent global developments, including the clash between US President Donald Trump and Ukrainian President Volodymyr Zelensky, and the suspension of US military aid to Ukraine.

Merz announced that the two parties aim to present a bill to parliament within the week, seeking an exemption for increased defence spending from Germany's constitutional "debt brake." The goal is to prioritize defence in response to perceived threats to European security and freedom. This shift marks a significant departure for Germany, traditionally sheltered under US security protection.

The proposals would also signify a substantial change in Germany's fiscal policy. According to economist Holger Schmieding, this would relax the country's long-standing commitment to maintaining minimal public debt. The plan includes exempting defence spending from the debt brake when it surpasses 1% of GDP, equating to approximately €45 billion at current economic levels.

Additionally, the two parties propose a special fund of €500 billion over the next decade, aimed at revitalizing Germany’s sluggish economy, which is facing a third consecutive year of recession. The plan would also allow federal states to incur debt up to 0.35% of GDP, a policy change to stimulate infrastructure investment.

Merz also emphasized the urgency of providing immediate financial aid to Ukraine, proposing a €3 billion emergency package that has been delayed. Discussions are set to continue with outgoing Chancellor Olaf Scholz to finalize the approval.

Merz’s proposals are being rushed through the outgoing parliament, where a two-thirds majority has been secured, thanks to cooperation with the Greens, despite the Greens not being part of the upcoming government. While supportive of Ukraine and infrastructure funding, the Greens have expressed concerns about the climate-related aspects of the package.

As the deadline approaches for the new parliament, Merz’s plans face opposition from the far-right AfD and far-left Linke, both of which could veto the proposed reforms.

The proposed budgetary increases would aim to modernize Germany’s military, with estimates of €200 billion to €400 billion needed to upgrade the armed forces. SPD negotiator Manuela Schwesig indicated that the defence budget could increase to at least €100 billion annually. Current Defence Minister Boris Pistorius praised the plans, calling it a historic moment for the military and Germany’s role in European security. The plans are seen as essential not only for defence but also for addressing decades of neglect in Germany’s infrastructure, which the SPD believes requires significant investment.