Germany’s huge borrowing plans approved by budget committee

Berlin — Germany’s parliamentary budget committee on Sunday approved plans for a huge increase in state borrowing aimed at bolstering defence and reviving growth in Europe’s biggest economy.

The committee convened for an extraordinary session and backed the plans — agreed on Friday between the conservative CDU/CSU, the Social Democrats (SPD) and the Greens — sending them on to parliament for adoption.

The bill, which includes a €500bn fund for infrastructure and changes to borrowing rules, will require a two-thirds majority in the parliamentary vote, which is scheduled for Tuesday.

It will be one of the last major acts of this Bundestag, or lower house, before a new one is due to convene on March 25 after an election last month.

German chancellor-in-waiting Friedrich Merz said on Friday he had secured the crucial backing of the Greens for the huge increase in state borrowing.

Merz’s conservatives and the SPD, who are in negotiations to form a government after an election last month, had proposed the €500bn fund for infrastructure and sweeping changes to borrowing rules to bolster defence and revive growth.

With the Greens, they are now likely have the two-thirds majority necessary to pass constitutional amendments that upend decades of German fiscal conservatism.

Merz has justified the urgent need to push the package through the outgoing parliament with recent shifts in US policy under President Donald Trump, warning that a hostile Russia and an unreliable US could leave the continent exposed.

"It is a clear message to our partners... but also to the enemies of our freedom: we are capable of defending ourselves," Merz, whose conservatives won the election, told a news conference.

"Germany is back. Germany is making a significant contribution to the defence of freedom and peace in Europe," he added.

Merz’s measures cleared another major hurdle on Friday, with the constitutional court throwing out complaints against them.

News of the deal lifted eurozone government bond yields, shares and the euro on expectation the borrowing plan would boost the wider European economy.

Merz wants to secure the funds before a new parliament convenes on March 25, where they risk being blocked by an expanded contingent of far-right and far-left legislators.

The compromise reached with the Greens includes the allocation of €100bn for the climate and economic transformation fund from the €500bn earmarked for infrastructure.

The swiftness with which Merz has reached such a historic deal could augur well for more decisive leadership from Germany, despite his lack of experience in government, some analysts say.

His critics though, including the Greens, accuse him of "voter fraud" for promising not to open the spending taps during the campaign only to announce a tectonic shift in fiscal policy just days after winning.

Merz cannot afford to many defectors on Tuesday as his conservatives, SPD and Greens are set to clear the two-thirds majority needed to pass constitutional amendments with just 30 votes to spare.

Reuters