Friedrich Merz, chancellor-in-waiting and leader of Christian Democratic Union party (CDU), at the CDU headquarters in Berlin, Germany, on 3 March 2025.;
Credit: REUTERS/Axel Schmidt
BERLIN (Reuters) - On Thursday 13 March 2025, Germany's outgoing lower house of parliament will hold a special session to debate a €500 billion fund for infrastructure and sweeping changes to borrowing rules in Europe's largest economy to bolster defence.
The winner of Germany's election last month Friedrich Merz wants to secure the funds before a new parliament convenes on 25 March, where they risk being blocked by an expanded contingent of far-right and far-left lawmakers. The prospect of such a spending shift in a country better known for its frugality has rocked markets over the past week, helping lift the euro to five month highs against the dollar.
The financial package is not a done deal though, with Merz's conservatives and likely future coalition partners the centre-left Social Democrats (SPD) needing to win over the Greens to secure the two thirds majority required to change the constitution.
Merz's manoeuvre could also get knocked back by the constitutional court which could deliver its verdict on challenges lodged by the far-right Alternative for Germany and far-left Left party as early as Thursday.
Germany's likely next chancellor says boosting defence has taken on a new urgency due to the prospect of long-time security ally the United States disengaging from Europe under the administration of President Donald Trump.
The boldness of Merz's statements and the swiftness with which he has reached a deal with the SPD on funding plans augur well for more decisive leadership from Germany going forward, despite his lack of experience in government, some analysts say.
That will be key, they say, for equipping Germany and Europe to deal with growing security challenges including a hostile Russia and more assertive China as well as reviving an economy that has contracted for two consecutive years.
The Bundestag lower house of parliament will on Thursday hold the first reading of the proposal by the conservatives and SPD as well as rival plans from the Greens and Free Democrats (FDP) for boosting defence funds.
Second and third readings are expected next Tuesday, resulting in a vote.
"The Greens' counter-proposal was most likely about increasing their leverage in negotiations over the next few days without overplaying their hand," Deutsche Bank wrote in a research note.
"Our base case remains for the reforms to pass with a two-thirds majority over the course of next week, but it is unlikely to be a smooth passage," it added, noting this would result in "the largest fiscal expansion since German reunification".
