Germany’s CDU and SPD reach historic debt deal to jump start defence spending
After days of intense debate, Germany’s leading political parties have announced a historic deal on a spending programme to unlock hundreds of billions of euros for defence and infrastructure.
The plan, proposed by the Christian Democratic Union (CDU) and the Social Democratic Party (SPD), would mean defence spending above 1% of Germany’s gross domestic product is effectively exempt from the country’s constitutionally enshrined “debt brake”.
It would also create a €500 billion special fund to finance infrastructure projects outside of the ordinary budget over the next decade.
The Greens had threatened to effectively torpedo the deal by withholding their support, demanding guarantees that the additional money would be spent on infrastructure rather than being diverted to fulfil the two main parties’ campaign promises.
In order to get the Greens on board, CDU leader and presumptive Chancellor Friedrich Merz offered to channel €100 billion from the infrastructure fund into the Climate Transformation Fund, a multi-year federal budget set up to finance climate and energy transition policy measures.
Merz also conceded that the word “additional” would be added to the bill, satisfying a key Green demand that no ongoing government projects could be financed from the extra cash unless they exceed 10% of the allocated budget.
The agreement also allows for an expanded definition of “defence” from what was originally presented in the SPD and the CDU’s plans, including intelligence services, civil defence, and aid to countries attacked in violation of international law.
Speaking on Friday, Merz said the agreement was an “acceptable, good result”.
The package still has to pass the Bundestag, and gain a two-thirds majority in the upper house, the Bundesrat.
If agreed, the proposal will mark a major step away from decades of rigid fiscal restraint, unleashing an enormous amount of money for Germany to up its defence spending and jump start its economy.
