Germany's New Fiscal Shift: Infrastructure, Climate, and Defense Boost

German Chancellor-in-waiting Friedrich Merz reached a deal with the Greens for a significant increase in state borrowing. The agreement includes a 500-billion-euro infrastructure fund and reforms to boost defense spending, likely ensuring parliamentary approval next week.

Germany is set to embark on a new fiscal journey as Chancellor-in-waiting Friedrich Merz clinched a crucial deal with the Greens. The agreement entails a significant boost in state borrowing to support infrastructure, climate, and defense initiatives.

The plan includes a substantial 500-billion-euro infrastructure fund to be implemented over 12 years. Of this, 100 billion euros are earmarked for climate and economic transformation, aligned with demands from the Greens.

The reform also addresses Germany's debt brake policy, allowing defense spending above 1% of GDP to be excluded from borrowing limits, thus enhancing the country's defense capabilities amid ongoing conflicts such as the one in Ukraine.