(CN) — In a historic shift for Germany and the European Union, the Bundestag on Tuesday voted in favor of reforming Germany’s rigid spending cap, setting in motion plans to massively ramp up military spending and revive an ailing economy with an injection of investment.
The divided parliament approved amending Germany’s so-called debt brake to exempt military spending from strict budget caps. The spending package passed with 513 votes in favor and 207 votes against, enough to clear a requirement for a two-thirds majority.
In 2009, Germany enshrined the debt brake into the constitution and limited new borrowing to 0.35% of gross domestic product, an extremely tight restriction. Germany’s upper house, the Bundesrat, is expected to give its approval on Friday.
The reform exempts any military spending above 1% of GDP from the debt brake. The Bundestag also approved putting 500 billion euros ($546 billion) into a special fund for infrastructure, including 100 billion euros ($109 billion) to fight climate change.
“In our view, this is a historic fiscal regime shift, arguably the largest since German reunification,” said Robin Winkler, the chief German economist at Deutsche Bank, in a briefing note. “Yet, as with reunification, a fiscal expansion does not guarantee success: The next government will need to deliver structural reforms to turn this fiscal package into sustainable growth.”
Amending the debt brake was pivotal for Friedrich Merz, the chancellor-in-waiting and leader of Germany’s conservatives, the Christian Democrats. He and his likely future coalition partner the Social Democrats are racing to pass up to 1 trillion euros ($1.09 trillion) in new investment.
Until recently, the debt brake was viewed as untouchable, but Germany is seeking to drastically change course by leading the EU toward a major rearmament as trust in the United States providing Europe a security umbrella has crumbled under U.S. President Donald Trump.
The spending plans are also meant to provide a much-needed economic stimulus to Germany, the EU’s biggest economy. But Germany has gone through two years of negative growth.
Speaking to the Bundestag, Merz said Germany must quickly build up its military capacity.
“We have for at least a decade felt a false sense of security,” Merz said. “The decision we are taking today on defense readiness … can be nothing less than the first major step toward a new European defense community.”
Because the constitutional change required a two-thirds majority, the Christian Democrats, Greens and Social Democrats hammered out a deal last Friday to amend the debt brake before a new Bundestag is seated on March 25. Far-right and far-left parties will have a bigger share of seats in the next parliament after February elections and they are opposed to Merz’s spending plans. Merz won the election, though with only 28% of the vote.
Merz was attacked by opposition parties for getting the package passed before the new parliament takes over.
“What a spectacle you’re subjecting the citizens and our voters to,” said Tino Chrupalla, the co-leader of Alternative for Germany, a far-right party.
“The most valuable asset politicians have is credibility. With these embarrassing actions, dear Mr. Merz, you’ve already completely lost yours,” Chrupalla said. “The voters feel betrayed by you — and rightly so.”
Christian Dürr, a parliamentary leader for the Free Democrats, a pro-business party opposed to raising debt levels, accused the Christian Democrats and Social Democrats of saddling Germany with debt.
Dürr called the incoming government “a debt coalition that is prepared to sacrifice tomorrow’s prosperity for short-term electoral gifts.”
Germany has long enjoyed balanced budgets and surpluses in large part because of the debt brake and a policy of balancing the budget, the “schwarze Null,” or “black zero,” policy.
Until recently, the German public and a majority of the country’s economic experts supported the tight fiscal policy. Long before the debt brake was enshrined into the constitution, Germany kept public debt, spending and wages in check to maintain its export-driven economy.
But advocates for a looser fiscal policy have been growing and Germany is being forced to change its economic model as it reels from global trade tensions, the war in Ukraine, the disorienting approach taken by Trump and a sagging economy.
There also is growing demand in Germany for more spending on infrastructure. According to a recent study, the nation needs roughly 400 billion euros ($437 billion) for modernization.
Germany is examining further easing of caps on debt, for example lifting debt brakes at the level of individual German states.
Courthouse News reporter Cain Burdeau is based in the European Union.