By Holger Hansen
BERLIN (Reuters) – German lawmakers will debate a 500-billion-euro infrastructure fund and sweeping changes to state borrowing rules to fund defence from March 13 in a race to get both steps passed by the outgoing parliament, a senior Greens lawmaker said on Thursday.
The Bundestag lower house will vote on the measures on March 18 before the formation of a new parliament on March 25, where both moves could get blocked by an enlarged contingent of far-right and radical left lawmakers.
The conservatives, led by Germany’s likely next chancellor, Friedrich Merz, and the Social Democrats (SPD), in talks to form a coalition, agreed this week to hike borrowing to spur growth in Europe’s largest but ailing economy and boost the military.
The moves, which have jolted markets, represent a tectonic spending shift in a country better known for its frugality and mark a rollback of rules imposed after the 2008 global financial crisis that many see as an outdated fiscal straitjacket.
The new fund could raise Germany’s debt-to-GDP ratio, now at around 64% – well below that of most other major industrialised nations – by some 12 percentage points, according to a draft proposal made by the civil service for the conservative and Social Democrat parliamentary groups and seen by Reuters.
But an existing 100-billion-euro special defence fund approved in 2022 after Russia’s invasion of Ukraine is no longer enough to modernize Germany’s army, the document said, arguing that Europe’s security situation had “changed dramatically”.
Germany’s about-turn is a result of the turmoil caused by the return of Donald Trump as U.S. president, bringing with it a realisation that Europe can no longer rely on the United States to guarantee its security in the face of a hostile Russia.
“There will still be talks before (a parliamentary vote), but the path has been chosen and set, and it is historic,” said Germany’s outgoing Defence Minister Boris Pistorius, a Social Democrat, at a news conference with his Ukrainian counterpart.
The issue of supplying Ukraine with long-range Taurus missiles also played a part in the exploratory talks on forming a new governing coalition, Pistorius added.
Senior Greens lawmaker Irene Mihalic said special sessions of the Bundestag had been scheduled for March 13 and March 18, confirming what two sources had told Reuters earlier.
THREAT OF LEGAL ACTION
Merz and the SPD need the backing of the smaller Greens party, which has yet to offer its support.
“Important questions remain unclear,” said Mihalic, adding her party wanted more information, including on why the plans envisaged more funds for certain areas of security.
“The complete lack of funding for climate protection measures is also incomprehensible,” she said.
Germany’s pro-business Free Democratic Party (FDP), which has lawmakers in the outgoing parliament but not in the new one, has said it will support a boost to defence spending but not the 500-billion-euro ($539 billion) infrastructure fund.
The far-right Alternative for Germany (AfD) has joined the radical Left party in threatening legal action. Together, the two parties would have enough votes to block the reforms once the new legislators are seated after performing strongly in last month’s election.
Investors and some economists have long urged Germany to reform the “debt brake” to free up investment and support an economy that has contracted for the past two years.
Merz and the SPD want to amend the constitution so defence expenditure above 1% of economic output is exempted from debt brake rules.
A commission of experts will separately develop a proposal for modernizing the debt brake to boost investments on a permanent basis.
Many businesses have welcomed the plans, but on Thursday, German banks joined those voices saying the reforms needed to be accompanied by overhauls to cut red tape.
($1 = 0.9270 euros)
(Additional reporting by Madeline Chambers; Reporting by Holger Hansen and Alexander Ratz; Writing by Ludwig Burger, Friederike Heine, Matthias Williams; Editing by Miranda Murray, Bernadette Baum and Gareth Jones)
