Germany’s likely next leader seeks approval for huge defence and infrastructure package

Friedrich Merz seeks to loosen Germany's debt rules for increased defence spending and infrastructure investment.

Germany’s would-be next Chancellor, Friedrich Merz, asked lawmakers on Tuesday (March 18, 2025) to loosen the nation’s strict debt rules to enable higher defence spending as doubts mount about the strength of the trans-Atlantic alliance and to authorise an enormous fund for investment in its creaking infrastructure, financed by large-scale borrowing.

Mr. Merz faced a major test in the outgoing parliament, which met for a final time to vote on the plans as his centre-right Union bloc works to put together a governing coalition with the centre-left Social Democrats of outgoing Chancellor Olaf Scholz after winning last month’s election.

The plans need a two-thirds majority in parliament’s lower house, the Bundestag, because they involve changes to Germany’s strict self-imposed borrowing rules – the so-called “debt brake,” which allows new borrowing worth only 0.35% of annual gross domestic product and is anchored in the constitution. That forced the prospective coalition partners into negotiations with the environmentalist Greens, whose votes will be needed to get enough support.

The package would exempt from the debt rules spending on defence and security, including intelligence agencies and assistance to Ukraine, of more than 1% of GDP. It also foresees setting up a 500 billion-euro ($544 billion) fund, financed by borrowing, to pour funding into Germany’s infrastructure over the next 12 years and help restore the stagnant economy – Europe’s biggest – to growth.

At the Greens’ insistence, 100 billion euros from the investment fund will go into climate-related spending.

The plans amount to an about-turn for Mr. Merz, whose party had spoken out against running up new debt before the election without entirely closing the door to future changes to the “debt brake.” The Social Democrats and Greens had long argued for a reform of the borrowing rules.

Recent weeks have brought new urgency to efforts to further strengthen Germany’s long-neglected military. The outgoing government created a special 100-billion-euro fund to modernize it, which also helped Berlin meet the current NATO target of spending 2% of GDP on defence. But that pot will be used up in 2027, and doubts have grown recently about the Trump administration’s commitment to European allies.