Germany’s Bundestag has approved a €500 billion ($548 billion) fiscal package, marking a historic shift in the country’s debt policies. The legislation, which required a two-thirds majority, passed with 513 votes in favor and 207 against. It now moves to the Bundesrat for final approval on Friday.
Breaking from fiscal conservatism
The reforms relax Germany’s debt brake, allowing increased borrowing for defense and security spending, as well as infrastructure investments. The decision comes amid concerns over Russia’s aggression and the need for Europe to strengthen its own defense capabilities.
Chancellor-in-waiting Friedrich Merz justified the shift, stating: “For at least a decade, we have felt a false sense of security. We must ensure our own security and take on a leadership role in Europe.”
Key elements of the package
- Defense spending above 1% of GDP will no longer be subject to debt restrictions.
- A €500 billion infrastructure fund will be created to finance transport, digitalization, and energy projects over the next decade.
- German states will have increased borrowing flexibility, with an additional €15 billion in debt allowances.
- The Green Party secured a commitment that €100 billion of the fund will go toward climate and economic transformation.
Economic and political implications
The move signals a departure from Germany’s traditionally frugal fiscal stance. Carsten Brzeski, global head of macro at ING, described the vote as leaving the debt brake “buried alive.”
While markets reacted positively, some economists caution that borrowing alone won’t revive Germany’s stagnating economy. Robin Winkler of Deutsche Bank called it a “historic fiscal regime shift” but warned that structural reforms would be necessary to turn debt-funded investments into long-term growth.
The bill was pushed through before the new parliament convenes on 25 March, avoiding potential opposition from the far-right AfD and far-left Die Linke, who could have blocked it.
Next steps
The package must still pass the Bundesrat, Germany’s upper house, where additional support is needed to ratify the changes. If approved, the reforms will mark Germany’s biggest spending overhaul since reunification, reshaping its economic and defense policies for the coming decade.
