BERLIN – Germany's two main centre parties struck a deal with the Greens on Friday to pass a massive infrastructure and defence spending package, marking a major turning point in the country's usually cautious fiscal policy.
The Christian Democratic Party (CDU/CSU) and the Socialist Party (SPD), which are poised to form Germany's next government coalition, have proposed relaxing the country's strict debt rules to invest potentially huge sums in rebuilding the army and infrastructure projects.
The parties confirmed that they had agreed with the Greens to add climate spending and take steps to remove aid to Ukraine from budget rules. The deal provides the votes needed to pass the deal after days of tense negotiations.
Germany's likely next chancellor, Friedrich Merz (CDU), said he was “very satisfied with both the content and the result.”
According to him, the compromise was unanimously accepted by the parliamentary group of Christian Democrats.
The party has a long tradition of fiscal conservatism, and initial plans were met by some members with accusations of wastefulness.
The main points of the initial proposal were included in the final version of the deal.
Defense spending above 1% of GDP will be excluded from calculating Germany's sovereign debt brake, a constitutional provision that limits the structural budget deficit to just 0.35% of GDP.
Greens seek concessions in deal
However, as requested by the Greens, this would also include spending on defence items beyond the military, including cyber security, civil defence and intelligence services, as well as support for states attacked in breach of international law. This means that aid to Ukraine would also be exempt from fiscal restrictions.
The parties will also create a €500 billion special fund outside the regular budget for infrastructure spending over the next decade. As a concession to the Greens, €100 billion of that fund will go to the Climate and Transformation Fund (KTF), a special fund dedicated to helping Germany reach its net zero goals.
On Friday, the Greens said they had managed to “direct money in the right direction” in talks with the CDU, CSU and SPD.
Party officials rejected an earlier compromise proposal because they were concerned that the newly acquired budget reserves would be used by the Christian Democrats and SPD for tax breaks.
The new agreement also includes a commitment that any spending from the infrastructure fund will be used for new projects, rather than as a way to outsource existing infrastructure spending to make room for pot spending in the regular budget.
Tight deadlines for adoption
The plans require a two-thirds majority in the Bundestag, Germany's lower house of parliament, and could be passed as early as Tuesday, when the outgoing parliament is due to meet in an extraordinary session.
The Greens' votes would have been sufficient in the outgoing Bundestag, but the SPD and Greens' losses in the February elections mean they will not be enough when the newly elected German parliament convenes on March 25.
Once that happens, they will either have to win over lawmakers from the far-left Socialist party Die Linke, who have long criticized military spending, or break long-standing German political taboos by negotiating with the far-right Alternative for Germany (AfD) party.
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Will Germany's centre parties be able to advance as far and as quickly as they try to portray in their statements?
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