The German Parliament narrowly approved a plan on Tuesday to loosen the government’s borrowing limits, allowing it to spend strongly for the defense and the infrastructure to compensate for the pivot of America far from Europe and try to end the years of economic stagnation.
On Tuesday, during a special parliament session, 513 legislators voted for the plan, two dozen more than the majority of two thirds required to modify the Constitution.
It was not the final vote on the level, which also faces legal challenges. But it was a crucial obstacle and its passage was celebrated by centrist legislators who hope that this will allow Germany to exhaust a more powerful leadership role at a critical moment for Europe.
The centerpiece of the plan, pushed by Friedrich Merz, the next Chancellor, relaxes what is familiarly known as “debt braking”, a limit to the loan of the government that Germany has devoted in its constitution.
This brake has reduced German debt, but it also prevented the government from investing in roads, software, bridges, tanks and other regions. Legislators claim that spending is now necessary to meet the drop in German competitiveness and the reduction of American security guarantees.
Here is a quick guide to the braking of the debt, how Mr. Merz and his allies want to change it, and what comes next.
What is the debt brake?
As The richest nationsGermany borrows money to help balance its annual federal budget. But unlike certain peers, notably the United States, Germany has a constitution which limits its annual loans to only 0.35% of the gross domestic product of the country. There are exceptions for economic slowdowns and natural disasters.
German legislators have voted in recent years to get around the limits with special money pots, including emergency pandemic expenses from 2020 and a recent bump for military spending. But overall, debt braking has forced loans.
In 2009, when the debt brake was introduced, Germany, the United States and Great Britain almost similar debt levels as part of their savings. Since then, this part has skyrocketed in Great Britain and America, but fell into Germany.
Why does Germany have it?
Debt braking was added to the constitution of Germany After the country’s budget deficit increased during the 2008 financial crisis. It became a signature economic policy and a national pride.
But the country’s aversion to significant deficits and debt predates the crisis. Its leaders borrowed a lot to help smooth the reunification between Western Germany and the East in the early 1990s, with mixed economic effects. More notoriously, high government debt helped to conduct hyperinflation In the Weimar government of the 1920s, helping Hitler’s rise in power.
This historical trauma has remained a nerve pain that has defined public and political debate around public debt in Germany for generations.
Why change it now?
Debt braking has not only depressed loans. His criticisms say that he has also handcuffed German’s ability to stimulate his economy, invest in his future and lead in European security affairs.
German expenses have lagged behind its needs to improve its transport networks, digitize its public services and make a host of other essential investments for its global competitiveness.
The country’s net public investment has been negative for 25 years, retaining economic growth, said Marcel Fratzscher, president of the German Economic Research Institute.
The brake was also a major reason why German legislators spent relatively little for their soldiers for decades, under the conviction that the United States would continue to protect its country as it did since the end of the Second World War.
Now, the release of debt braking has become urgent while the German economy continues to shrink and President Trump threatens to retreat or eliminate America’s security role in Europe.
“It is now or never a sharp increase in spending,” said Mr. Fratzscher.
Even those responsible for the central bank of Germany, The Bundesbankcalled on changes to debt braking to release money for government investment to stimulate growth.
“Rarely in the history of the post -war period in Germany, government investments were as necessary as today – and rarely since reunification, potential yields have been as promising,” wrote economists from the Deutsche Bank Research Institute last week.
“Germany has successfully used the good years of the last decade to create budgetary flexibility for more difficult moments,” he added. “And times will probably remain difficult for the rest of the decade.”
The change has been propelled as much as everything by strategic concerns.
“The debt braking reform is of central importance given the change of time that the United States is no longer reliable allies of Germany,” Anton Hofreiter, member of the Parliament for the Green Party, in an SMS said this week.
With him, he said: “It is now possible to finance satellites, intelligence services, cyber -fans and support for Ukraine alongside the urgent upgrade of the Bundeswehr” – the German army.
What changes do legislators plan?
The agreement that Mr. Merz concluded with the Greens and the Social Democrats of the Center-Gauche creates an exemption from the braking of the debt for all the expenses in defense above 1% of the gross domestic product.
It also defines “defense” largely, including domestic intelligence, aid to allies and other measures in parallel with weapons purchases. Indeed, German legislators could borrow all sums that the government bond market would finance these elements.
Mr. Merz has also agreed to create a new infrastructure fund of 500 billion euros – nearly $ 550 billion – spread over 12 years, outside the braking limits. As a result, 100 billion euros would be intended for projects to combat climate change.
What are the chances they succeed?
Well, but the obstacles remain.
Having decided to modify the Constitution to allow additional loans, Mr. Merz took the unusual measure to pass the measure in the last days of a lame parliament to Fuyer, even before they can become chancellor.
After the success of the vote on Tuesday, the change must still be approved by the Federal Council of States on Friday before being able to come into force. It could also be very close.
And even then, the plan faces legal challenges, including the extreme right alternative for Germany. The courts have refused to stop the vote so far.
The legislators of the three large centrist parties supporting the package say that they are convinced that they will win.
A few hours before Parliament did not take the measure, Lars Klingbeil, one of the leaders of the social democrats, told his legislative colleagues: “It was time for us to pursue a financial policy without dogmas, without ideologies, but to focus on growth, prosperity and security.”
