Friedrich Merz’s €1tn spending package has cleared its final hurdle in Germany’s outgoing parliament as the conservative chancellor-in-waiting turns to difficult coalition talks with Social Democrats.
On Friday, the constitutional reform secured the support of more than two-thirds of the seats in the Bundesrat, the upper house that represents Germany’s 16 federal states.
The changes, which were approved by the Bundestag this week, loosen the country’s constitutional borrowing restrictions to allow unlimited defence spending and create a special €500bn, 12-year vehicle to modernise the country’s infrastructure.
The package signals Germany’s ambition to accelerate its rearmament and could jolt the Eurozone’s largest economy out of years of stagnation. Its approval caps a month-long race against time to pass it in the outgoing parliament, whose term ends next week.
Merz, whose Christian Democratic Union (CDU) won elections last month, convened the old parliament in emergency sessions to be able to use the mainstream parties’ required supermajority. The far-right Alternative for Germany and the far-left Die Linke, which would have been likely to oppose the package, hold a blocking minority in the newly elected Bundestag.
The CDU, SPD and Greens fell short of the two-thirds majority required in the Bundesrat until the CSU, the CDU’s sister party in Bavaria, secured the backing of its state coalition party, the Free Voters, earlier this week.
In the end, two more states, governed by a coalition involving Die Linke, voted in favour of the plan, bringing the majority to 53 out of a total of 69 seats in the upper chamber.
“It’s a big success for Merz,” said Andreas Busch, professor of political sciences at Göttingen university. “He has shown he can deliver, and he did so under difficult circumstances, pulling together a complex ad-hoc coalition with parties he was until very recently in opposition with.”
Economists have estimated the country’s armed forces need more than €400bn in the coming years. Merz’s reform also allows the federal states to take on new debt.
“The constitutional amendment sends a huge signal to friends and foes, it is a signal to the world and Europe,” said Markus Söder, Bavaria’s premier. “Germany has decided not to be defenceless any more, Germany wants to be there again, Germany wants more.”
To secure the backing of his likely coalition partners, the SPD, on defence spending, Merz agreed to establish the special fund for infrastructure. The Greens subsequently bargained for more investments to be allocated to green transition in exchange for their support.
The 69-year-old politician is now turning to complicated talks with the SPD to agree a broader coalition agreement, with the aim of forming a government by the end of April, before the Bundestag can elect him as chancellor.
Dozens of negotiators for the CDU, CSU and SPD are spread over 16 working groups on different topics. Merz will be seeking to shift the focus back on budget and tax cuts, according to party insiders and allies.
While the spending deal has been largely welcomed abroad by other governments, investors and security experts, at home it has stunned some conservatives.
During the campaign, Merz repeatedly opposed calls from outgoing SPD chancellor Olaf Scholz to change the country’s “debt brake”, which was introduced under former CDU chancellor Angela Merkel in 2009 and caps structural deficit at 0.35 per cent of GDP.
Scholz’s coalition ultimately collapsed over how to plug a budget gap last year, which paved the way for early elections.
Merz has justified his U-turn by pointing to the dramatic deterioration of the transatlantic relationship under Donald Trump, who has been rushing to reach a peace settlement with Vladimir Putin over Ukraine, without initially consulting EU Nato allies.
But Merz’s decision to agree to a massive debt-funded infrastructure programme in exchange for SPD support means he will need to win some symbolic concessions during coalition talks, such as cuts in social benefits.
His camp has been emphasising the need for “structural reforms” and “budget consolidation”. This could make it more difficult for SPD members to back a coalition deal.
Each party would want to show “trophies” they secured during the talks, said Armin Steinbach, professor at HEC. “And so far the trophies are only on the SPD side,” he said.
“This infrastructure package is a huge success for the SPD, this is what they have dreamt of for the past 10-15 years. Merz now needs to come out with some visible outcomes.”
The chancellor-in-waiting earlier this week said that “money alone does not solve a problem”.
“The investments made possible by the (constitutional) amendment . . . do not reduce the need for consolidation of public budgets,” Merz said. “The opposite is true. Increasing debt triggers rising interest rates, and rising debt also calls for repayment plans.”
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