By Anthony Marcus for Eurasia Business News, March 21, 2025. Article no.1459.

The German parliament has given final approval to a significant defense and borrowing package worth €500 billion. This package, proposed by incoming Chancellor Friedrich Merz, aims to boost Germany’s military spending and establish a substantial infrastructure fund to revitalize the country’s economy.

Defense Spending

The package allows for increased defense spending by exempting it from Germany’s strict “debt brake” rules. This will enable defense expenditures to exceed 1% of GDP, marking a significant shift from previous fiscal policies.

Infrastructure Fund

A €500 billion fund will be established over the next 12 years to invest in Germany’s aging infrastructure. This is expected to stimulate economic growth and improve the country’s competitiveness.

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Part of the infrastructure fund will also support climate transformation measures, with €100 billion allocated for this purpose.

Legislative Process

The package required a two-thirds majority in both the Bundestag (lower house) and the Bundesrat (upper house) due to its constitutional implications. The Bundestag approved the measure with 513 votes in favor, and the Bundesrat followed suit with a successful vote on March 21.

Political Context

Friedrich Merz’s conservatives and the Social Democrats (SPD) negotiated with the Greens to secure the necessary votes. This coalition is crucial for advancing Merz’s economic and defense agenda.

    Implications

    Economic Impact

    The package marks a departure from decades of fiscal conservatism in Germany, aiming to boost economic growth after two years of contraction.

    Defense Strategy

    The increased defense spending reflects Germany’s commitment to strengthening its military capabilities and contributing more significantly to European defense efforts.

    The agreement enables increased defense spending, potentially reaching 3% of GDP by 2027, as part of a broader strategy to enhance European defense capabilities

    The ongoing conflict in Ukraine and Russia’s aggressive stance have heightened concerns about European security. Germany’s decision to increase defense spending is partly a response to these threats, aiming to bolster its military capabilities and support Ukraine with additional aid.

    International Relations:

    The move is seen as a response to geopolitical uncertainties, including concerns about U.S. commitment to NATO and the ongoing conflict in Ukraine.

    Conclusion

    The approval of the €500 billion defense and borrowing package is a significant step for Germany, signaling a major shift in its defense and economic policies. It underscores Germany’s commitment to enhancing its military capabilities and revitalizing its economy, while also addressing broader European security concerns.

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    © Copyright 2025 – Eurasia Business News. Article no. 1459.