Germany’s major spending package that contains a reform of the country’s debt brake and hundreds of billions of euros of investments in defence, infrastructure and climate action has cleared the last hurdle, reports online news agency CLEW, as the Council of Federal States (Bundesrat) approved the law proposed by the prospective coalition government, a conservative alliance of the Christian Democrat Union (CDU)) and Christian Social Union (CSU)) together with the Social Democrats (SPD). With 53 out of the 69 votes in the council, the proposal gained seven votes more than what would have been necessary to achieve the required two-thirds majority, while four of the 16 federal states – Brandenburg, Saxony-Anhalt, Thuringia and Rhineland-Palatinate – abstained from the vote.
After the German parliament (Bundestag) adopted the package on 18 March, the vote in the Bundesrat cleared the way for a key instrument of the likely next government coalition under conservative leader Friedrich Merz as chancellor. The package contains a special fund worth €500 bn earmarked for additional investments in infrastructure and climate neutrality, as well as changes to the constitutional limit on government borrowing (the ‘debt brake’) to allow greater leeway for the federal government’s defence budget.
Merz’s proposal was expected to clear this second hurdle after the CDU leader agreed on a deal with the Green party at the end of the previous week, which stipulated that at least one-fifth of the 500-billion-euro special fund is reserved for climate action and put the national target of achieving climate neutrality by 2045 into the constitution. Winfried Kretschmann, influential Green Party state premier from Baden-Wurttemberg, said that while his state agreed to the necessary step, he would do so with “a significant feeling of disturbance.”
However, the vote also hinged on support from other parties, including the Free Voters in Bavaria. The party’s leader, Bavarian economy minister Hubert Aiwanger, who had initially rejected the spending package, said he ultimately consented to the proposal as his party would likely would have been ejected from Bavaria’s coalition government otherwise.
The special fund, the changes to the debt brake and the effective removal of a ceiling on defence spending mark a monumental shift in Germany’s fiscal policy, which in the past years had been pivoted on financial discipline. The package is expected to provide a major stimulus to the country’s ailing economy and also to the European economy as a whole if the funds are used prudently and not to replace spending otherwise coming from the core budget.
