Germany's CDU Unveils €500 Billion Infrastructure and Defense Fund
Friedrich Merz, the leader of Germany’s Christian Democratic Union (CDU), has announced plans for a €500 billion special fund aimed at bolstering infrastructure and defense spending. The proposal, unveiled just over a week after Merz’s victory in the federal elections, signals a potential shift in Germany’s traditionally conservative fiscal policies.
Speaking at a press conference in Berlin on Tuesday alongside leaders of the Bavarian Christian Social Union (CSU) and the Social Democrats (SPD), Merz emphasized the urgency of the initiative. "In view of the threats to our freedom and peace on our continent, our defence must now apply ‘Whatever it takes,’" he said. The CDU, CSU, and SPD are expected to present a joint bill in parliament next week to ease the country’s strict debt rules, known as the "debt brake."
A Departure from Fiscal Restraint
The proposed fund marks a significant departure from Germany’s long-standing fiscal conservatism. In 2009, the country enshrined the debt brake in its constitution, limiting government borrowing to a structural deficit of no more than 0.35% of GDP. However, the rule was temporarily suspended during the COVID-19 pandemic to allow for increased borrowing to finance economic stimulus packages.
Merz argued that the current global political climate, including heightened tensions in Europe, necessitates a renewed focus on defence and infrastructure. "The additional spending on defence can only be managed if our economy returns to stable growth within a very short period of time. This requires rapid and sustainable investments in our infrastructure," he said.
The bill will require a two-thirds majority in parliament to pass, meaning Merz will need to secure support from the Greens, who have criticized the lack of prior consultation. Katharina Dröge, the Greens' parliamentary group leader, expressed frustration that the CDU/CSU did not engage in dialogue with her party before announcing the plan. "The CDU/CSU could have discussed their plans with us in advance to secure the majority needed," she said.
Investments Beyond Defence
SPD leader Lars Klingbeil highlighted that the proposed fund would not only address defence needs but also invest in schools, daycare centers, and infrastructure. "This country has been running on empty in many areas, but that is now a thing of the past," Klingbeil said.
The announcement has sparked debate over Merz’s fiscal strategy, particularly given his silence on such plans during the election campaign. Critics argue that the sudden push for increased borrowing contradicts the CDU’s traditionally cautious stance on public debt. However, Merz and his allies have defended the move as a necessary response to evolving global challenges.
As Germany prepares to reconvene its outgoing parliament to vote on the bill, the proposal underscores the delicate balance between fiscal responsibility and the need for strategic investment in an increasingly uncertain world.