- €544 billion infrastructure fund financed through borrowing
- Defense spending to exceed 1% of GDP amid NATO concerns
- Debt brake constitutional rules suspended for security priorities
- Greens secure 20% climate allocation in final deal
Chancellor-designate Friedrich Merz secured preliminary approval Tuesday for Germany's largest fiscal reform since reunification, citing urgent European security needs following suspected Russian sabotage campaigns. The package carves out exemptions from constitutional debt limits that previously restricted annual deficits to 0.35% of GDP. Analysts warn this marks a permanent shift toward flexible fiscal sovereignty in the EU's largest economy.
The defense provisions follow NATO intelligence reports showing Germany falling behind Poland in military readiness. Under the plan, Berlin will maintain 2% defense spending through 2035 while establishing rapid-deployment cyber units. Infrastructure investments target 78 critical transport corridors identified in a 2023 Federal Audit Office report, with 15% earmarked for eastern states still recovering from 1990s deindustrialization.
Political risks emerged as the Alternative for Germany (AfD) party accused Merz of 'betraying fiscal conservatives.' However, the Bavarian Christian Social Union's surprise endorsement provided crucial upper-house votes. Economists highlight parallels to France's 2022 military budget surge, noting both nations now exceed Italy's defense-GDP ratio for the first time since 1991.
Industry analysts predict the infrastructure package will create 230,000 construction jobs by 2026, with Siemens Energy and Deutsche Bahn already announcing rail electrification contracts. The Greens' climate stipulation requires 60% of materials to meet EU sustainability standards, potentially adding €38B to project costs according to Berlin's IfW Institute.
Final parliamentary approval hinges on Friday's Bundesrat vote, where state leaders seek expanded borrowing rights for local green energy projects. If passed, Germany's debt-to-GDP ratio could reach 75% by 2030 – still below the EU average but a 15-point increase from pre-pandemic levels.
