In the German Federal Parliament, the Bundestag, significant events transpired this week.
Germany is set to undergo significant changes in its fiscal policies, as a draft bill introduced by the SPD and CDU/CSU factions seeks to amend the Basic Law. The proposed constitutional amendments aim to loosen the traditional limits imposed by Germany’s debt brake, increase defense spending, and facilitate infrastructure investments.
The amendments will modify the debt brake, enabling a €500 billion infrastructure fund over twelve years that operates outside the debt brake restrictions. This fund, earmarked for modernizing Germany’s aging infrastructure, will provide a major fiscal stimulus, supporting investment in construction, machinery, and equipment. The fund will be available for state and municipal investments, with 100 billion euros allocated specifically for infrastructure investments by the states.
The revised Articles 109 paragraph 3 and 115 paragraph 2 of the Basic Law grant the federal government the power to provide additional budget funds to strengthen Germany's alliance and defense capabilities. This move aims to raise the defense budget to the NATO target of 3.5% of GDP by 2029. The defense spending, along with foreign aid for countries “attacked in violation of international law,” will be exempt from borrowing limits.
The amendments also aim to enable the financing of essential projects that would not be feasible under the current debt brake rules. The Russian attack on Ukraine and the current shift in US foreign policy present significant new challenges to European and German security and defense policy, making these changes necessary.
A special fund of up to 500 billion euros is being enabled for the financing of infrastructure investments. The specific regulations and the determination of a purpose-appropriate use of funds for the special infrastructure fund will be regulated by simple law. An expert commission will be set up to develop a proposal for modernizing the debt brake beyond these constitutional amendments, which will permanently enable additional investments to strengthen the country.
The federal government’s power to provide additional budget funds for defense is not limited in time, unlike the special fund. A structural debt allowance of 0.35 percent of GDP is being granted to the states, allowing them to take on more loans, regardless of the economic situation. The expansion of the fiscal room for maneuver without specifying or limiting it in time sends a clear international signal that the medium- to long-term strengthening of the Bundeswehr is being implemented.
The states will decide within their budget autonomy on the actual use of the additional borrowing capacity and the specific use of financial resources. The focus of the amendments is on ensuring reliable financing for external security and facilitating investments in the modernization of infrastructure at the federal, state, and municipal levels.
The bill will be discussed in the first reading this week, with the final vote in the Bundestag scheduled for next week. The project is expected to be completed by the end of 2025, and the new special fund is expected to finally resolve the investment backlog in the country. The strengthening of the Bundeswehr must be deepened and continued due to these challenges.
- The draft bill introduced by the SPD and CDU/CSU factions in Germany seeks to modify the debt brake to establish a €500 billion special fund for infrastructure investments over twelve years, with the aim of modernizing aging infrastructure and providing a major fiscal stimulus.
- In addition, the revised articles of the Basic Law grant the federal government the power to provide additional budget funds to strengthen Germany's alliance and defense capabilities, and to raise the defense budget to the NATO target of 3.5% of GDP by 2029, with these spending areas exempt from borrowing limits in the face of new challenges to European and German security and defense policy.
