Chancellor Friedrich Merz has entered into an agreement with his probable coalition partner to inject hundreds of billion additional funds into German soldiers and infrastructure, in a “budgetary sea change” designed to rekindle and rearore the greatest economy in Europe.
In an advertisement that came a little over a week after winning the federal elections, Merz said late Tuesday that his democratic Christian union (CDU), his Bavarian sister party and rival Social Democrats (SPD) will jointly present a bill in Parliament next week to soften the The country’s strict borrowing rules.
A provision exempted defense expenses over 1% of the “debt braking” GDP that caps of the government, allowing Germany to increase unlimited debt to finance its armed forces and provide military assistance to Ukraine.
The future Coalition Partners will present another constitutional amendment to create a fund of 500 billion euros for the infrastructure, which would take place over 10 years. They also plan to loosen the rules of debt for states.
The news has triggered the largest sale of the German government’s debt since 2020 Wednesday, while investors were preparing for a significant increase in the loan. The yield on the 10 -year Bund, a reference for the euro zone, jumped 0.19 percentage points to 2.67% at the start of negotiations.
“This budgeting sea change will permanently modify how the bunds are negotiated,” said Tomasz Wieladek, head economist in Europe in the T Rowe Price asset manager, adding that higher yields “will considerably increase the financing costs of all the other sovereigns of the euro zone”.
The massive budgetary stimulus of Germany also underlined the feeling of emergency in Europe, stimulated by the threat of American president Donald Trump to relax the American guarantees which have long supported the security of the continent.
“This is a budgetary sea change for Germany,” said Holger Schmieding, head economist in Berenberg. “Merz and his coalition occasionally are occasionally.”
Echoing Mario Draghi’s wish to defend the euro zone in 2012 when he was president of the European Central Bank, Merz said that Germany would do “everything you need” to repel “threats to freedom and peace” in Europe.
In addition to the party leaders of the SPD and the Christian Social Union of Bavaria at a press conference in Berlin, Merz declared that the package would also stimulate the economy of the signing of Germany, which suffered from two years of stagnation after decades of underinvestment in railways, roads, bridges and communication infrastructures.
“Additional defense expenses can only be made if our economy is up to stable growth in a very short period of time. . . This requires rapid and lasting investments in our infrastructure. »»
The bills need a two -thirds majority in Parliament to pass, which means that Merz will have to win back the outgoing Bundestag which was elected in 2021 – and guarantee the support of the Greens.
The plan marks an astonishing change in the traditionally conservative position of Germany on the budgetary stimulus. Berlin devoted the braking of the debt to its constitution in 2009, which limits the government’s loan and maintains the structural deficit to 0.35% of GDP.
Defense specialists and economists welcomed Merz’s decisive stage.
Jana Puglierin, principal researcher at the European Council for Foreign Relations, said: “It is a huge investment in Germany’s ability to act – and potentially in Europe [ability to act] If Germany finds its way to a constructive European leader. »»
Liana Fix, member of Europe at the Washington -based foreign relations council, said this decision had marked “real Zeitenwende “ – A moment in the watershed – like the outgoing Chancellor Olaf Scholz had promised by revealing a defense fund of 100 billion euros following the large -scale invasion of Ukraine in Russia in 2022.
The CDU / CSU Merz conservative opposed the debt braking reforms before the February 23 elections. However, a few hours after the first time in the national vote, the faithful transatlantist said that Europe needed to achieve Washington’s “independence” since Trump seemed “largely indifferent” to the fate of Europe.
Jens Südekum, professor of international economy at Heinrich Heine de Düsseldorf University who exhorted Merz to reform the braking of the debt, described the announcement as “a total changer of the game”.
Merz has accelerated the coalition that speaks with the SPD since Trump publicly urged the president of Ukraine Volodymyr Zelenskyy At the White House last week. The decision of the American president this week this week to suspend military aid to kyiv, who amazed the Ukrainian authorities and their European allies, only added the feeling of urgency.
Exemption from the defense of debt rules “is a reasonable approach that did not seem possible only days ago”, Henning Meyer, professor at Tübingen University who is close to the SPD. Defense “does not lend itself to a special fund defined. You just don’t know how much you will need and in what period, “he said.
Puglierin said Merz “took great personal risk” by moving so quickly from his campaign statements.
“He only does that so quickly and so decisively because he really sees an absolute emergency for Germany and Europe,” she said. “Without the Trump administration’s actions in recent weeks, this would not have been possible.”
The preliminary agreement opens the way to a wider coalition agreement with the SPD. The next Chancellor of Germany wants to use the supermajority of the outgoing parliament to adopt constitutional amendments because his government would probably be blocked in the following parliament by the extreme right Alternative for Germany and the die to the left of Linke.
The current parliament can be summoned until March 25, before the new deputies could sit.
The Merz agreement with the SPD came while the European Commission described on Tuesday a joint debt instrument which would allow the member states to finance the purchase of military equipment.
