Chancellor-in-waiting Friedrich Merz wants to alter Germany’s strict fiscal rules to massively boost defence spending, the Greens are standing in his way.
Germany’s Christian Democratic Union (CDU) leader Friedrich Merz on Thursday made concessions to the Green Party in the hopes it would lend critically important votes to his multi-billion-euro spending spree.
Merz and the CDU, alongside would-be coalition partners, the Social Democratic Party (SPD), unveiled their plans last week to lift Germany’s “debt brake”, which was written into Germany’s constitution in 2009 at the height of the global financial crisis. It tightly restricts the government’s ability to borrow new money.
Over the years, the country’s strict fiscal rules have created headaches for successive governments as they tried to raise funds to respond to crises. It was suspended in 2020 as the state tried to deal with the Covid-19 pandemic, and in 2024, a spat over its reform led to the breakdown of the country’s three-party ruling coalition.
Last week, the CDU and the SPD proposed exempting defence spending that exceeds 1% of Germany’s GDP from the debt brake, which currently sets the structural deficit at a maximum of 0.35% of the country’s GDP.
The proposal would also set up a €500 billion fund to invest in Germany’s creaking infrastructure over the next decade, as well as loosen borrowing rules for Germany’s sixteen states.
But the Greens, who have long argued for reform of the debt brake, are now standing in Merz’s way. Although the party supports changing the debt brake, it argues the proposals on the table do not address the need to invest in Germany’s clean energy transition.
The Greens have offered their own draft law, one which expands the definition of “defence” and draws more on funds from within the government’s current budget.
Merz tries to appease the Greens
On Thursday, Merz and the SPD attempted to appease the Greens by offering to divert €50 billion of the special funds 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 scope of defence spending would be expanded to include civil defence and intelligence spending.
“What more do you want from us in so short a time?” Merz demanded.
The Greens, however, stuck to their criticism, with party parliamentary group leader Katharina Dröge arguing on Thursday that “shifting of billions” from one fund to another should not be the purpose of the draft law, arguing that the word “additional” be added to the proposal.
The party say they fear that without safeguards such as the word “additional” added, the money kicked up through the proposal will simply be used to fulfil the campaign promises of the CDU and the SPD.
Merz and the SPD are deeply dependent on votes from the Greens to pass the proposal through the country’s old parliament as adjusting the debt brake requires a majority vote of two-thirds of the parliament.
The new makeup of the Bundestag — which is set to convene 25 March — would mean that without the Greens on board, Merz would need votes from the Alternative for Germany (AfD) and The Left to push forward the measure.
But both of these parties were so opposed to the debt brake proposal that they filed urgent lawsuits to the country’s Constitutional Court to prevent the debate from taking place.
Expert support, but challenges ahead
Adjusting the debt brake has general approval from the country’s economists, with disagreement primarily lying in the wording of the government’s proposals.
Jens Südekum, who alongside three other economists brainstormed the proposal upon which the CDU and SPD’s plans are based, said that the word “additionality” is missing to make the proposals more robust.
“We really need to make sure if we have this debt break reform that the additional money only flows to military and infrastructure,” Südekum told Euronews. “We need to make a very strong commitment to say: OK, all of the money goes additionally into infrastructure, investment and military.”
Influential economist Veronika Grimm of the German Council of Economic Experts has also expressed concern over the proposals, telling domestic media that the problem with the measures is in their “design”.
“There is a risk that their negative effects will outweigh the positive ones, thus counteracting the intended effect,” Grimm wrote in an open letter to the Bundestag budget committee.
Südekum told Euronews that while the Greens are making trouble for Merz and the SPD, the biggest catastrophe would still be if no package and adjustment is agreed at all.
“We (Germany) have been stagnating for five years. We are entering dirty tariff wars with the US, geopolitical tensions, and Donald Trump doesn’t negotiate with losers. So, we only can basically push through our interest if we bargain from a position of economic strength,” Südekum said.
Merz himself has framed the multi-million-euro package as vital “in light of the threats to our freedom and peace on the continent.”
“The world is watching,” Merz said on Thursday, as the clock ticked down and the Greens showed no sign of falling in line with the bill.
He faces several days of negotiating with the Greens in order to get the party on board with his proposals ahead of a vote on the 18 March.
The bill must also pass through the Bundesrat, or Germany’s upper house, which represents the governments of the country’s 16 states. There, the CDU, SPD and Greens would need the backing of one more party for the bill to pass.
