Germany’s chancellor-in-waiting and leader of the Christian Democratic Union party (CDU) Friedrich Merz and Germany’s Defence Minister Boris Pistorius attend an extraordinary session of the outgoing lower house of parliament, the Bundestag, for a vote to adopt the draft law brought by the SPD and CDU/CSU parliamentary groups to reform constitutional debt rules and set up a 500 billion euro infrastructure fund, in Berlin, Germany March 18, 2025.Â
Annegret Hilse | Reuters
Germany’s Bundestag on Tuesday voted in favor of a major fiscal package, which includes changes to long-standing debt policies to enable higher defense spending and a 500 billion euro ($548 billion) infrastructure and climate fund.
Some 513 parliamentary members voted in favor of the plan, while 207 voted against it. There were no abstentions.
More than two thirds of parliament were needed to support the package in order for it to pass. The law also needs to be approved by the Bundesrat, a body representing the country’s states, on Friday to become enshrined in Germany’s constitution.
Under the proposed new laws, defense and certain security expenditures above a certain threshold would no longer be subject to the debt brake, which limits how much debt the government can take on and dictates the size of the federal government’s structural budget deficit.
Loans taken on as part of the infrastructure fund would also be exempt from the debt brake, while Germany’s states would also have greater flexibility around debt.
Carsten Brzeski, global head of macro at ING, on Tuesday said the vote meant the debt brake rule is now “not officially dead but buried alive.” Â
“Germany has given up on leading the group of fiscal frugals in Europe for the sake of boosting its economy,” he added.
The Christian Democratic Union, alongside its sister party the Christian Social Union, which jointly won the largest share of votes in Germany’s national election in February, proposed the fiscal shift in collaboration with the Social Democratic Party. The factions appear likely to form the incoming coalition government, with the fiscal reform package a by-product of talks about a potential governing partnership between them.
A tight vote
Time pressure to pass the reforms is high as they require changes to the constitution and need the support of two thirds of both parliament and the Bundesrat.
This was likely only going to be possible before the newly elected parliament comes together for the first time next week, as parties opposing the fiscal package will then have a larger share of the vote and could potentially block the plans.
Several of the parties that oppose the reforms have also unsuccessfully launched legal challenges to hinder the vote.
Germany’s chancellor-in-waiting and leader of the Christian Democratic Union party (CDU) Friedrich Merz walks, on the day of an extraordinary session of the outgoing lower house of parliament, the Bundestag, for a vote to adopt the draft law brought by the SPD and CDU/CSU parliamentary groups to reform constitutional debt rules and set up a 500 billion euro infrastructure fund, in Berlin, Germany March 18, 2025.Â
Liesa Johannssen | Reuters
In the lead-up to the Tuesday vote, the CDU-CSU and SPD also had to negotiate for the backing of Germany’s Green Party, ultimately agreeing on a compromise that includes 100 billion euros of the infrastructure fund being allocated to climate and economic transformation efforts and a broadening of the security-related issues exempted from the debt brake.
A boost to the economy?
Analysts and economists have broadly reacted positively to the reform plans, viewing them as a potentially major boost for Germany’s struggling economy.
Robin Winkler, chief German economist at Deutsche Bank Research, urged caution, however, suggesting there was still work to be done for the incoming government.
“This is a historic fiscal regime shift, arguably the largest since German reunification,” he said Tuesday after the vote. “Yet, as with reunification, a fiscal expansion does not guarantee success: the next government will need to deliver structural reforms to turn this fiscal package into sustainable growth.”
The German economy narrowly skirted a technical recession — or two consecutive quarters of economic contraction — throughout 2023 and 2024, but has been effectively stagnant.
The OECD on Monday said it was now projecting Germany’s gross domestic product to grow by an annual 0.4% this year, down from the previously forecast 0.7% expansion. German economic institute Ifo, meanwhile, said it was cutting its outlook for the country’s economy to 0.2% growth year-on-year.
It comes as Germany is facing sustained infrastructure problems, as well as issues in key industries such as housebuilding and autos. The country is also battling the threat of potential tariffs imposed by U.S. President Donald Trump on imports to the U.S. from Europe — which could be especially difficult for Germany due to its high levels of trade with the U.S.
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