Friedrich Merz’s ambitious €1 trillion spending plan has successfully passed its final legislative challenge in Germany’s parliament, setting the stage for the future chancellor to engage in intricate coalition discussions with the Social Democrats.
On Friday, the constitutional reform garnered the necessary support in the Bundesrat, Germany’s upper house representing the 16 federal states, achieving more than a two-thirds majority. This vote followed earlier approval by the Bundestag. The reform modifies Germany’s constitutional borrowing limits, allowing for unrestricted defense expenditures and establishing a €500 billion, 12-year initiative to modernize infrastructure.
This package highlights Germany’s intent to hasten its military enhancement, potentially kickstarting the Eurozone’s largest economy after years of stagnation. Its approval concludes a fervent effort to enact it before the current parliament’s term ends next week.
Having led his Christian Democratic Union (CDU) to victory in recent elections, Merz reconvened the outgoing parliament in urgent sessions to secure a supermajority, which was needed because the newly elected Bundestag includes a blocking minority from the far-right Alternative for Germany and the far-left Die Linke, both likely opponents of the package.
Initially, the coalition of the CDU, Social Democrats (SPD), and Greens lacked the necessary support in the Bundesrat. This changed when the CSU, the CDU’s Bavarian counterpart, won over the Free Voters, its state coalition partner. Additionally, two more states governed with Die Linke’s participation supported the package, bringing the total to a decisive 53 out of 69 seats in the upper chamber.
“This is a major triumph for Merz,” commented Andreas Busch, a political science professor at Göttingen University. “He has demonstrated his ability to deliver results in complex and challenging circumstances, successfully forging partnerships with previous adversaries.”
Economists forecast that Germany’s military will require over €400 billion in upcoming years. The reform also enables federal states to assume new debt.
“The constitutional amendment sends a strong message globally,” noted Markus Söder, Bavaria’s premier. “Germany is determined not to remain defenseless; we aim to stand strong once more.”
To gain the SPD’s support for defense spending, Merz acquiesced to creating the special infrastructure fund. The Greens, in turn, secured commitments for green investments as part of their backing.
Now, at 69, Merz faces the task of navigating complex negotiations with the SPD to establish a broad coalition, hoping to form a government by April’s end so the Bundestag can elect him chancellor.
Numerous CDU, CSU, and SPD negotiators are working across 16 groups on various topics. Merz’s focus, according to insiders, will likely pivot towards budget and tax reductions.
Though the spending initiative has been welcomed internationally by other governments, investors, and security experts, it has sparked surprise among some conservatives domestically.
During his campaign, Merz was a vocal critic of outgoing SPD Chancellor Olaf Scholz’s calls to alter Germany’s “debt brake,” a policy initiated by former CDU Chancellor Angela Merkel in 2009 that limits the structural deficit to 0.35% of GDP. Scholz’s coalition fell apart last year over budget concerns, leading to early elections.
Merz defends his policy shift by citing strained transatlantic relations under Donald Trump, who sought a peace deal with Vladimir Putin regarding Ukraine without initially involving EU NATO allies.
However, his choice to embrace a debt-funded infrastructure initiative in exchange for SPD support necessitates securing symbolic wins in the coalition talks, possibly through social benefit reductions.
Merz’s team underscores the importance of “structural reforms” and “budget consolidation,” which might complicate securing SPD backing for the coalition.
Armin Steinbach, a professor at HEC, remarked on each party’s desire to showcase achievements from the negotiations. “So far, the SPD holds all the trophies,” he said.
“The infrastructure package marks a significant success for the SPD. This has been their aspiration for the last decade or more. Now, Merz needs to yield tangible results.”
Earlier this week, Merz asserted, “Spending alone won’t solve issues.” He added, “The investments facilitated by this constitutional amendment do not eliminate the necessity for public budget consolidation. Indeed, increasing debt leads to higher interest rates, necessitating repayment plans.”
