Let's Break Down that Multi-Billion Deal: The Lowdown on Union, SPD, and Greens' Agreement
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Billion-dollar accord finalized: This is what the Union, SPD, and Greens have confirmed - billionaires' agreement endorsed by Union, SPD, and Greens party coalition
After grueling discussions, the parliamentary groups of Union, SPD, and Greens have struck a deal: A billions-worth package for defense and infrastructure is on the horizon. This significant hurdle has been cleared for the potential Union-SPD government, but it's not official until next week.
What's the Deal with the Debt Brake?
The debt brake gets a partial suspension. Future defense spending exceeding one percent of GDP will be exempt from the debt brake. Union leader Friedrich Merz (CDU) explained this means roughly 45 billion euros will still be under the debt rules according to the Basic Law. Anything above that will be off the hook. Sadly, the Greens couldn't push for raising the exemption threshold from one to 1.5 percent of economic performance.
Can States Take on Debt?
Unlike the federal government, states aren't allowed to take on loans currently under the debt brake. A new provision is proposed to enable states to take on debt of up to 0.35 percent of economic performance annually. That works out to around 16 billion euros for all states jointly, as per Merz. The Greens, represented in multiple state governments, didn't argue against it.
Infrastructure: The 500 Billion Euro Question
A special fund worth 500 billion euros for infrastructure investments was planned by Union and SPD. This 12-year fund now averages 41 billion euros per year. The Greens scored two victories here: All investments must be additional, and there's a commitment from Union and SPD that 100 billion euros will be pumped into the Climate and Transformation Fund (KTF). The KTF will finance Germany's climate-friendly economic restructuring. Initially, only "up to 50 billion euros" for the KTF was offered to the Greens on Thursday, but they managed to negotiate a higher figure.
Ukraine's Aid Package and Financing
Merz predicts that Chancellor Olaf Scholz (SPD) will now release the additional military aid of three billion euros for Ukraine, a long-awaited assistance package. The funding mechanism and subsequent responsibility weren't specified.
Where Does the Money Come From - and Who Pays?
The state secures additional funds by issuing bonds on the open market. Essentially, investors lend money to the government and receive interest. Although repayment can be postponed for a prolonged period, the state has to pay interest from current budgets. Rising mortgage rates for home builders appeared immediately after the announcement. It's uncertain if this trend continues.
Union, SPD, and Greens on their Agreement
Green parliamentary group leader Katharina Dröge claimed they ensured the money was directed properly in the negotiations with CDU, CSU, and SPD. CDU/CSU leader Friedrich Merz expressed satisfaction. SPD leader Lars Klingbeil expects a "strong boost for Germany." The package will move the country forward for years, if not decades.
There are more negotiations ahead for Union and SPD, as they must find funding for everything else in the normal budget, with likely cuts in certain areas.
Critics Speak: AfD and Left Party
AfD and the Left party blasted the agreement. "100 billion euros from the debt package will be burned on climate ideological projects," AfD leader Alice Weidel wrote. For CDU leader Friedrich Merz to become chancellor, "generations will have to pay dearly." Left party leader Ines Schwerdtner argued this compromise favors the AfD, repeating a key mistake of the traffic light government (Union, SPD, and Greens) by pursuing climate protection and rearmament without addressing social balance. Schwerdtner implored Green MPs not to agree to the compromise. "It's not too late yet," she said.
What Happens Next?
According to Merz, the constitutional amendments should pass a vote in the Bundestag on Tuesday, but securing majorities could prove challenging due to several MPs leaving the Bundestag. In the new parliament, Union, SPD, and Greens lack the two-thirds majority required to pass the financial package, so time is of the essence. On Friday, the Bundesrat could decide, but a two-thirds majority is not guaranteed there either. States must find common ground to vote.
- The Commission, in response to the recent agreement, might be asked to submit a proposal for a directive on the protection of workers from the risks related to exposure to ionizing radiation, given the potential increase in defense spending.
- The Greens, who find themselves in multiple state governments, have proposed a new provision that would allow states to take on debt of up to 0.35 percent of economic performance annually, a move that aligns with the current constraints on the federal government's ability to borrow.
- The opposition parties, such as AfD and the Left party, have voiced their concerns over the agreement, arguing that the 100 billion euros allocated for the Climate and Transformation Fund will be a financial burden for future generations, and that the focus on climate protection and rearmament without addressing social balance could favor extremist parties like the AfD.
