German defence spending is about to get a huge boost.
A historic plan that will release billions of euros of extra investment for defence and infrastructure is likely to be rubber-stamped today.
The package proposed by the chancellor in waiting, Friedrich Merz, will see strict rules around debt loosened, clearing the way for a spending surge.
Under the unprecedented plan, defence and security spending above 1% of gross domestic product (GDP) will be exempt from borrowing rules introduced after the 2008 financial crisis.
Aid for Ukraine can also potentially be included in that exemption.
It comes at a crucial moment in the war in Ukraine, as America appears to be backing away from Europe.
On Tuesday, the plan backed by Mr Merz’s conservative block, with the support of the Social Democrats (SPD) and the Green Party, passed through the lower house of parliament with 513 out of 720 votes in favour.
Today, it’s expected the upper house will give it the final sign-off.
“We have for at least a decade felt a false sense of security. The decision we are taking today on defence readiness… can be nothing less than the first major step towards a new European defence community,” said Friedrich Merz ahead of the vote.
Some €500bn (£418m) will also be freed up to improve roads, schools, bridges and other infrastructure but will also pay for climate change measures as requested by the Green Party.
Markets have so far reacted positively to the potential boost to Europe’s largest economy.
“In our view, this is a historic fiscal regime shift, arguably the largest since German reunification,” said Robin Winkler, chief German economist at Deutsche Bank Research, while cautioning the changes would need to be converted into financial growth.
German army chiefs have repeatedly warned the country needs to be war-ready in the next five to eight years.
This is the timeframe that they warn that Russian forces could be capable of attacking a NATO country.
But decades of neglect mean a recent report found the country’s military is still ageing and shrinking. Supporters hope the relaxation of borrowing rules will be the cash injection the armed forces and industry need.
The conservative block and SPD wanted to push the legislation through the outgoing parliament for fear it could be blocked by an enlarged contingent of far-right and far-left lawmakers in the next Bundestag, starting on 25 March.
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Mr Merz has declared “Germany is back” and the plan has been welcomed by Germany’s allies, including NATO chief Mark Rutte who praised the “historic agreement” on social media.
“It’s excellent news because it sends a very clear message, very clear message also to Europe that Germany is determined to invest massively in defence,” added EU Commission President Ursula von der Leyen.
