History: Defense Superpack approved in Germany

Proposal will break “debt brake” to create a billion fund for infrastructure and increase defense expenses. Voting was seen as a strength test for a future government led by Friedrich Merz.

The Parliament of Germany approved on Tuesday a historic proposal to loosen the country’s “debt brake” and create a superpat of expenses in defense and infrastructure, with 513 votes in favor of the change and 207 against-two thirds of the 733 Bundestag deputies were necessary to approve the constitutional amendment.

Voting was seen as crucial to enable a future government coalition under the leadership of the conservative Friedrich Merzleader of the Christian Democratic Union (CDU).

The CDU countertops, the Social Democratic Party (SPD) and the Green Party voted mostly in favor; Already the deputies of the party of far-right alternative to Germany (AFD) and the conservative liberal democratic party (FDP, in the acronym in German) voted against.

“Not to war credits”: package is controversial

The vote was preceded by intense debates. In recent days, several opposition parties have tried to trigger the Federal Constitutional Court of Germany to lock the vote, arguing that a constitutional change in such magnitude should not occur in the final stretch of the current Bundestag legislature. However, the court rejected the requests.

Still, members of critical parties of the constitutional reform expressed their dissatisfaction in the debates that preceded the vote on Tuesday. Deputies of the small left -wing populist party BSW even protested with posters in the plenary, with messages like “1914-2025: not to war credits.”

Merz and CDU, together with its Bavarian partner, the Social-Christian Union (CSU), and the SPD, announced the plan at the beginning of the month, with the purpose that it was approved in this legislature, that is, before the new parliament took office on 25 March.

The strategy was outlined due to the fear of conservatives and social democrats-which currently negotiates the formation of a government coalition-that the plan was blocked in the new legislature by the far-right AFD and the left party, which increased their representation in Bundestag and will have enough places to wrap constitutional reforms of this dimension.

Still, CDU/CSU and SPD countertops needed additional alliances in this legislature, as they had no two -thirds necessary to change the rule.

When Merz announced that the Green Party, currently the third largest bench, had decided to support the initiative after the initial resistance.

With the countertops added, the set of parties was able to bring together sufficient deputies to change the “debt brake”, in force since 2009 and which has been severely limited the country’s indebtedness capacity.

The change will modify the debt limits to increase defense expenses and also provides for a break in the debt brake to the federal states, as well as the creation of a Special fund of 500 billion euros for investments in infrastructure over the next ten years.

Now, the proposal will still have to go through Bundesrat, the legislative institution with 69 members representing the governments of the 16 federal states of Germany. Here too, a minimum of two thirds of the votes will also be required. The voting is expected to take place next Friday.

MERZ CEDE: The chronology

The reform of the “debt brake” represents an inversion of the debt rules imposed after the 2008 global financial crisis, adopted by the then federal chancellor Angela Merkel in 2009. According to the proposal, Any military expense greater than 1% of GDP will be exempt from the brake.

During the election campaign, Merz was ambiguous about his intention to reform the debt brake, with some leaders of his party to manifest themselves openly against the measure.

A a lack of consensus Regarding the flexibilization of the federal government’s debt limits was one of the main factors that led to the collapse of the government’s government coalition, the social democrat Olaf Scholz. FDP liberals, who ruled with Scholz, rejected the measure, while social democrats and green argued that it was necessary to finance investments in infrastructure.

However, after the campaign, Merz began to emphasize the urgency of increasing defense expenses, citing the growing hostilities of Russia and the uncertainties about US military support to Europe.

Impact on growth and debt

Economists warn that the change in the rule may have a deep impact on the economy. The 500 billion euros infrastructure fund planned by Germany could increase economic production by more than two percentage points per year, on average, over the next decade, estimated the German Economic Institute.

The sum of defense and infrastructure expenses may guarantee a growth of 2.1% already in 2026, instead of the 1.1% previously providedindicated the DIW.

Another institute, IFW, also reviewed its growth forecast for 2026 in Germany, now predicting a 1.5% expansion due to the expected increase in public expenses.

The IMK Economic Institute, which has not yet updated its predictions, estimates that the German economy records Only 0.1% growth this yearafter two consecutive years of contraction in 2023 and 2024. However, he said that the new proposals can make a big difference.

“If the financial package is implemented quickly, a significant acceleration of growth may be recorded in the second half of the yearand annual growth may move away from stagnation, ”said IMK economic director Sebastian Dullien.

On the other hand, economists also provide for the debt/GDP ratio to increase significantly in the coming years due to reform. Last year, Germany’s indebtedness rate was about 64% of Gross Domestic Product (GDP)-far below that of other large industrialized countries such as the United States and France.

But Commerzbank chief economist Jörg Kraemer expects this level to increase considerably in the coming years-at about 10 percentage points-due to the new special infrastructure fund.

The increase in defense expenses also should further increase the debt indexin at least 2.5 percentage points per year if, for example, the increase reaches 3.5% of GDP.

“In ten years, the General government index of government may rise to 90%Although it also depends on inflation and so it is not easy to predict, ”said Kraemer.