Germany’s parliament voted Tuesday in favor of incoming German Chancellor Friedrich Merz’s massive debt reform that will increase defense spending amid Russia’s ongoing war in Ukraine, calling the debt “justified under very specific circumstances.” File Photo by Clemens Bilan/EPA-EFE
March 18 (UPI) — Germany’s parliament voted Tuesday in favor of incoming chancellor Friedrich Merz’s massive debt reform, which will free up hundreds of billions of euros for Europe’s defenses amid Russia’s ongoing war in Ukraine.
“Such debt can only be justified under very specific circumstances,” Merz, the leader of the center-right Christian Democratic Union, said Tuesday. “The circumstances are determined above all by Vladimir Putin’s war of aggression against Europe.”
“The decision we are taking today can therefore be nothing less than the first major step towards a new European defense community,” Merz added shortly before Germany’s Bundestag voted 513 in favor of the reform to 207 against.
More than two-thirds of parliament was needed in order for the debt reform to pass as it requires amendments to the Constitution. The Bundesrat, which represents Germany’s states, is also required to adopt the fiscal package.
Under the new law, German defense spending above a certain threshold would no longer be subject to the debt brake, which limits how much debt the government can add. In addition to defense spending, the fiscal package includes 500 billion euros, or $548 billion, for aging infrastructure and a climate fund.
Germany, which is the European Union’s largest economy, had limited its non-emergency budget deficit to 0.35% of gross domestic product. Now defense spending exceeding 1% of GDP is exempt from the debt brake, as is aid for Ukraine.
On Tuesday, U.S. President Donald Trump and Russian President Vladimir Putin spoke by phone for 90 minutes with both leaders agreeing on the need for immediate peace talks, as well as the basic structure for cease-fire agreements that could lead to a permanent end to Russia’s war in Ukraine.
Merz, who will become Germany’s top official after winning in snap elections last month, said Tuesday’s vote should help all of Europe’s defense with “reliable and predictable orders going to European manufacturers whenever possible.”
The debt brake rule is now “not officially dead but buried alive,” declared Carsten Brzeski, global head of macro at ING.
“Germany has given up on leading the group of fiscal frugal in Europe for the sake of boosting its economy,” Brzeski added, as other economists warned there is no “guarantee,” amid the threat of potential Trump tariffs on imports to the United States from Europe.
“This is a historic fiscal regime shift, arguably the largest since German reunification,” said Robin Winkler, chief German economist at Deutsche Bank Research.
“Yet, as with reunification, a fiscal expansion does not guarantee success,” Winkler added. “The next government will need to deliver structural reforms to turn this fiscal package into sustainable growth.”