The German Chancellor of Friedrich Merz plans to unlock hundreds of billions of additional funds for the military and the infrastructure of the country while the coalition speaks with the social democrats come together.
An option being examined is a proposal from the best German economists to collect up to 800 billion euros in new public loans for two separate budget funds over a decade, two people who know the issue said.
A third -person informed of start -up negotiations said they were centered on a combined package of 500 billion euros. People have warned that other options could be examined.
Such a plan would mark a change of steps in the traditionally conservative approach of Germany to public loan. Berlin in 2009 devoted a debt brake in its constitution, which limits government loans and maintains the structural deficit to 0.35% of GDP.
The economists’ proposal would be “a double bazooka,” said Armin Steinbach, professor of economics at HEC, referring to the term used for the stimulus of Chancellor Olaf Scholz during the Cavid-19 pandemic.
The proposal would stimulate a stagnated economy and point out that the greatest EU democracy seriously concerns the increase in defense capacities at a time when the US administration seeks to relax the transatlantic alliance.
This could be “very important,” said Holger Schmieding, head economist in Berenberg. “And it seems that the negotiations go ahead very quickly and that we could get an agreement quickly.”
The German central bank has made any reform of debt rules should focus on the creation of additional budgetary spaces for public investment. In a policy proposal, the Bundesbank said that a more fundamental reform of debt braking could generate up to 220 billion euros in investment by 2030.
If the level of debt to the GDP of Germany has remained less than 60%, the government’s ability to borrow should be more than tripled by 0.35%of GDP to 1.4%, the bank said. Even with debt levels above 60%, the Bundesbank suggested increasing the 0.9% of GDP structural deficit.
The talks in Germany came while the European Commission described on Tuesday a joint debt instrument which would allow the member states to finance military equipment.
The instrument would imply the borrowing of the commission on the markets against the EU budget, then lending to the Member States at cheap prices. Unanimous support from EU countries would need.
The 150 billion euros in loans could buy “air defense and anti-missile, the artillery system, missiles and ammunition drones and anti-line systems, but also to respond to other cyber means for military mobility,” said Ursula von der Leyen, president of the Commission.
She added that the lifting of EU tax rules for defense investments would allow countries to spend 650 billion euros in defense over four years, or around 1.5% of GDP on average.
Countries will also have the possibility of redirecting their regional development funding for Defense, and the European Investment Bank will be invited to extend investment in defense.
“It’s time for Europe and we have to be up to it,” said Von Der Leyen.
In Germany, Merz, whose conservative block of the CDU / CSU won the elections on February 23, accelerated coalition talks with the SPD since Donald Trump publicly urged Ukraine President Volodymyr Zelenskyy At the White House last week.
Merz said on Monday that he was referring to the defense funding with the SPD before Thursday, when EU leaders come together to discuss Ukraine and the security of the continent.
“From my point of view, the urgency is great,” he said, refusing to comment on the proposal to two funds. “We should try to agree on this subject before the EU summit on Thursday.”
Merz refused to comment on the instruments or the figures, saying: “It’s all open.”
The next Chancellor of Germany reported He wants to use the supermajority of the outgoing parliament to adopt the constitutional amendments that these loans would need, because his government would probably be blocked by the extreme right Alternative for Germany and Far-Gauche Die Linke in the following Parliament.
The outgoing parliament can be reconstructed during an extraordinary session until March 25.
Speaking before exploratory discussions with the CDU / CSU, the Co-Leaders and negotiators of the SPD Lars Klingbeil and Saskia Eskin suggested on Monday that they would ask for more funding for transport and energy infrastructure, which, according to experts, required an investment of around 600 billion euros.
“Are we able to answer even big questions now?” This certainly includes the question of external security and defense capacities of our country. But this also includes infrastructure, which has been overlooked in recent years, “said Esken. “Too little was invested in energy, network infrastructure, roads, railways, collapsed bridges, but also social infrastructure.”
Merz should also convince the Green Party to obtain a two -thirds majority. The Greens were pressure for a wider debt brake reform.
The Chancellor of goalkeeper Scholz, who led the SPD to his worst result since the beginning of the 20th century, campaigned to soften the brake of the debt. But such a reform would take months and would probably face strong opposition from certain factions of the CDU / CSU.
A way to temporarily get around the debt braking is to set up off -budget funds in the Constitution. Scholz has set up a 100 billion euros vehicle in 2022 to buy military equipment and weapons after Russia’s invasion on Ukraine.
More than 80% of this fund, which expires in 2027, was committed, but an option is to complete it. The two -fund package would be a quick “political compromise” to avoid a more complex debt braking overhaul, Steinbach said.
The proposal was written last week by experts from the country’s economic institutes.
The unsolicited proposal was negotiated by Jakob von Weizsäcker, former university and politician economist SPD who is Saarland’s Minister of Finance. Experts argued that the need to quickly increase defense capacities was a solid argument to use the debt, said two people with knowledge of their thoughts.
They also approved a debt braking overhaul at the next legislature. But politicians had to act quickly and on a large scale, they wrote. “There is no point in discussing 100 billion euros or 200 billion euros,” said one of the people.
