Just three days after Russia launched its invasion of Ukraine in February 2022, Germany’s chancellor, Olaf Scholz, announced a bold initiative: a £100 billion fund aimed at upgrading the country’s armed forces. Scholz addressed a shocked Bundestag, explaining that Vladimir Putin’s aggressive actions indicated a Zeitenwende—a significant turning point—for Europe.
Scholz’s insights proved prescient. However, the full impact of emerging threats to European values, security, and economic interests became apparent only with Donald Trump’s return to the White House. For European leaders, understanding the implications of a potential Trump 2.0 administration for the transatlantic alliance marks another critical moment of danger and decision.
Friedrich Merz, Scholz’s anticipated successor from the center-right, seems ready to take decisive action. Despite winning February’s snap election with promises of restricting state spending on defense and a stagnant economy, Merz made a surprising turnaround on Tuesday. He revealed a plan to amend Germany’s Basic Law to allow significant debt-financed investments in both the military and the economy.
In a country known for its cautious political approach, Merz’s willingness to sidestep legal barriers on government debt signals a monumental change. This move could lead to sustained increases in defense spending, setting Germany up as a leader in Europe’s quest for strategic independence from the United States.
Merz’s ambitious proposal doesn’t overlook other crucial investments. If the outgoing Bundestag approves the deal next week, it would also meet Social Democratic party (SPD) demands by funding economic and social infrastructure projects through a borrowed €500 billion special fund.
Ironically, Merz, who has a background as an investment banker and a reputation as a deficit hawk and economic liberal, finds himself challenging Germany’s ingrained resistance to debt. This stance had previously limited the country’s ability to address evolving geopolitical challenges. Yet, the leader of the Christian Democratic Union (CDU) deserves recognition for his political bravery in acknowledging the current dynamics.
Across Europe, struggling economies and insufficient investment have eroded trust in mainstream politics, fueling the rise of the Trumpian far right. In Germany, the constitutional “debt brake,” intended to shield future generations from the impacts of risky borrowing, now poses a hindrance to necessary investments in their future amidst today’s numerous and expensive challenges.
Leadership across Europe should pay attention—especially in Britain, where Chancellor Rachel Reeves seems inclined to stick to her self-imposed fiscal rules in the upcoming spring statement. The expected decision from Thursday’s EU summit in Brussels to allow increased national defense spending necessitates a profound shift in how the EU tackles debt and deficits. This would echo the approach agreed upon by Merz and the SPD.
In a manner reminiscent of Mario Draghi’s “whatever it takes” pledge during the eurozone crisis, Merz vowed on Tuesday to do whatever is necessary to safeguard freedom and peace. To succeed in advancing his transformative proposals, he will need the backing of both the Greens and the SPD. Securing this support is crucial for the best interests of Germany and Europe.
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