In a landmark agreement, Germany’s two main parties—the Christian Democrats (CDU/CSU) and the Social Democrats (SPD)—have struck a deal with the Greens to pass a massive infrastructure and defence spending package.
The deal represents a significant shift in Germany’s traditionally cautious fiscal policy, as it involves loosening the country’s strict debt rules to fund critical investments. The agreement, reached after days of tense negotiations, includes defence spending exemption, infrastructure fund, as well as climate and net-zero investments.
Defence expenditures exceeding 1% of GDP will be exempt from Germany’s debt brake, a constitutional rule that limits the structural budget deficit to 0.35% of GDP. The move aims to address urgent military modernisation needs in light of growing security threats.
Meanwhile, a €500 billion special fund will be established outside the normal budget to finance infrastructure projects over the next decade. The fund is intended to support the modernisation of Germany’s aging infrastructure and boost economic growth.
As part of the compromise with the Greens, €100 billion will be allocated to climate projects and the transition to a net-zero economy, reflecting the growing importance of environmental priorities in German politics.
Political challenges
However, the package requires a two-thirds majority in the Bundestag, Germany’s lower house of parliament. While the outgoing parliament has enough votes to pass the deal with the support of the Greens, the newly elected parliament—set to convene on 25 March—will face a tougher challenge.
The SPD and Greens suffered losses in February’s election, leaving the coalition short of the necessary votes. To secure passage, the government may need to negotiate with the socialist party, The Left, which has historically opposed increased military spending. Alternatively, it could break long-standing political taboos by engaging with the Alternative for Germany (AfD), though this option is considered highly unlikely.
The deal marks a turning point in Germany’s fiscal approach, which has long prioritised balanced budgets and debt reduction. The decision to exempt defence and infrastructure spending from the debt brake reflects the urgency of addressing both national security concerns and economic modernisation.
The package is expected to be put to a vote as early as Tuesday, when the outgoing parliament reconvenes for an extraordinary session. If passed, it will set the stage for a new era of investment in Germany’s defence, infrastructure, and green transition.
