Germany’s incoming Chancellor Friedrich Merz has detonated a key pre-election pledge on debt as the country forges ahead with eye-watering net zero and defence spending.
On Tuesday, 18 March 2025, Germany’s lower house emphatically through constitutional changes, allowing billions in borrowing and a massive military expansion, all under a caretaker government.
The controversy centres on the fact Merz is breaking a major pre-election pledge on debt, something Germany has previously been wary of doing.
Merz, elected just weeks ago on 28 February, promised to uphold the sacred “debt brake” - a fiscal rule capping deficits at 0.35 per cent of GDP.
The measure was seen as proof of Germany’s economic prudence and iron-grip on its finances, but almost immediately Merz has shattered that pledge.
In what critics are calling a ‘blitzkrieg of political manoeuvring’, the Bundestag voted 512 to 206 to ditch the debt brake as Germany charges into its ‘spending era’.
Commentators have questioned how democratic the move is because the newly elected parliament- including the right-wing AfD- have not taken their seats yet.
Knowing the vote arithmetic was more favourable now than it would be after 25 March, Merz chose to push the changes through the old parliament, denying the AfD and left wing Linke the chance to vote against it.
Aside from timing, what the money is being spent on is also attracting controversy. There is a €500billion infrastructure fund to fix things like roads and schools, but also a €100billion fund for net zero projects.
The latter is widely viewed as a ‘bribe’ of the Green party who Merz’s Christian Democrats needed support from to push the measures through.
Other measures include vast defence spending increases, in keeping with the massive rearmament programmes being launched across Europe in the wake of Donald Trump’s increasingly isolationist outlook.
In Germany, defence spending will now soar beyond 1 per cent of GDP, with billions more for Ukraine and regional borrowing unleashed - all of which will be exempt from usual fiscal limits.
Merz says his plans is proof of Germany “assuming leadership” in NATO and Europe, even hinting the UK should join his “new European defence community”, likely under EU command.
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“We have for at least a decade felt a false sense of security,” Merz told lawmakers ahead of the vote.
“The decision we are taking today on defence readiness … can be nothing less than the first major step towards a new European defence community,” he added.
“I want to make this clear: I am in favour of us doing everything we can to uphold transatlantic cooperation. I consider it indispensable, but we must now do our homework in Europe.
“We must become stronger. We must ensure our own security. That is our responsibility. Germany has a leading role to play in this, and I believe we should be prepared to assume this leadership responsibility.”
EU Commission President Ursula von der Leyen cheered, calling it “excellent news” for Europe’s defence ambitions.
European countries, who have looked to Germany for so long as the backbone of the EU economy, will now be watching nervously to see how markets react to the historic vote.
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On Tuesday, 18 March 2025, Germany’s lower house emphatically through constitutional changes, allowing billions in borrowing and a massive military expansion, all under a caretaker government.
The controversy centres on the fact Merz is breaking a major pre-election pledge on debt, something Germany has previously been wary of doing.
Merz, elected just weeks ago on 28 February, promised to uphold the sacred “debt brake” - a fiscal rule capping deficits at 0.35 per cent of GDP.
The measure was seen as proof of Germany’s economic prudence and iron-grip on its finances, but almost immediately Merz has shattered that pledge.
In what critics are calling a ‘blitzkrieg of political manoeuvring’, the Bundestag voted 512 to 206 to ditch the debt brake as Germany charges into its ‘spending era’.
Commentators have questioned how democratic the move is because the newly elected parliament- including the right-wing AfD- have not taken their seats yet.
Knowing the vote arithmetic was more favourable now than it would be after 25 March, Merz chose to push the changes through the old parliament, denying the AfD and left wing Linke the chance to vote against it.
Aside from timing, what the money is being spent on is also attracting controversy. There is a €500billion infrastructure fund to fix things like roads and schools, but also a €100billion fund for net zero projects.
The latter is widely viewed as a ‘bribe’ of the Green party who Merz’s Christian Democrats needed support from to push the measures through.
Other measures include vast defence spending increases, in keeping with the massive rearmament programmes being launched across Europe in the wake of Donald Trump’s increasingly isolationist outlook.
In Germany, defence spending will now soar beyond 1 per cent of GDP, with billions more for Ukraine and regional borrowing unleashed - all of which will be exempt from usual fiscal limits.
Merz says his plans is proof of Germany “assuming leadership” in NATO and Europe, even hinting the UK should join his “new European defence community”, likely under EU command.
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“We have for at least a decade felt a false sense of security,” Merz told lawmakers ahead of the vote.
“The decision we are taking today on defence readiness … can be nothing less than the first major step towards a new European defence community,” he added.
“I want to make this clear: I am in favour of us doing everything we can to uphold transatlantic cooperation. I consider it indispensable, but we must now do our homework in Europe.
“We must become stronger. We must ensure our own security. That is our responsibility. Germany has a leading role to play in this, and I believe we should be prepared to assume this leadership responsibility.”
EU Commission President Ursula von der Leyen cheered, calling it “excellent news” for Europe’s defence ambitions.
European countries, who have looked to Germany for so long as the backbone of the EU economy, will now be watching nervously to see how markets react to the historic vote.
Find Out More...