Friedrich Merz secures Greens support for historic borrowing increase

In a significant political development in Germany, Friedrich Merz, the chancellor-in-waiting, announced an agreement reached with the Green Party on March 15, 2025, for a substantial increase in state borrowing. This agreement is set to facilitate a 500 billion euro fund aimed at bolstering infrastructure and adapting borrowing rules to strengthen national defense and foster economic growth within Europe’s largest economy. The collaboration provides Merz’s conservative party and the Social Democrats the necessary two-thirds majority to implement constitutional amendments that would pave the way for these financial initiatives. The arrangement includes a crucial compromise with the Greens for 100 billion euros designated for climate and economic transformation from the overall 500 billion euro infrastructure fund. Notably, the proposed constitutional changes would allow expenditures in defense and other critical areas to be exempt from existing borrowing limits, a significant shift from the strict 'debt brake' rules established in the aftermath of the 2008 financial crisis. This new policy direction represents a remarkable departure from the traditional fiscal conservatism associated with Merz’s Christian Democratic Union (CDU). Merz’s strategy is motivated by recent geopolitical shifts, particularly growing tensions with Russia and uncertainties in U.S. foreign policy under President Donald Trump. He articulated a need for Germany to bolster its defense capabilities to ensure the continent's security, proclaiming, 'It is a clear message to our partners .. but also to the enemies of our freedom: We are capable of defending ourselves.' The announcement triggered a positive market response, with increases in euro zone government bonds and national stock indexes, indicating investor confidence in the potential economic impact of this borrowing initiative. As the Bundestag prepares for a voting session next week, the urgency to secure this funding before the parliament convenes anew is palpable. With the inclusion of far-right and far-left lawmakers in the upcoming legislative term, Merz faces the risk of opposition that could hinder these ambitious plans. The roll-out of this package marks a pivotal moment not only in Merz’s political trajectory but also signifies a strategic pivot for Germany, as it aspires to regain a considerable role on the European stage through increased defense spending and infrastructure development.