Germany’s future government partners announced on Tuesday their plan to relax debt restrictions to boost defense spending. Concerns over the U.S. commitment to European security have made this issue more urgent.

Major Infrastructure Investment

They also proposed a 500 billion euro ($533 billion) fund to modernize Germany’s infrastructure over the next decade. Europe’s largest economy has contracted for two years, and this investment aims to restore stable growth.

Strengthening Defense

Friedrich Merz, the center-right election winner, is negotiating a coalition with the center-left Social Democrats of outgoing Chancellor Olaf Scholz. They plan to exclude defense spending above 1% of GDP from borrowing limits. The proposal, along with the infrastructure package, will be presented to the outgoing parliament next week. Germany’s military has long been underfunded, but recent developments highlight the need for urgent improvements. “In view of the increasing threat situation, it is clear to us that Europe — and with Europe, the Federal Republic of Germany — must now very quickly make very big efforts, very quickly, to strengthen the defense capability of our country and the European continent,” Merz said. Merz emphasized the importance of NATO and expressed hope that the U.S. would continue its alliance commitments. However, he also acknowledged that Germany must take greater responsibility for its defense. He pointed to recent U.S. policy decisions, likely referring to shifting positions on Ukraine. “‘Whatever it takes’ must also go for our defense now, in view of the threats to our freedom and to peace on our continent,” Merz said. Merz, a strong supporter of the trans-Atlantic alliance, has prioritized strengthening Europe’s defense to reduce dependence on the U.S. He noted that statements from the Trump administration suggest America is becoming indifferent to Europe’s future.

Germany’s Commitment to NATO Spending

After Russia’s invasion of Ukraine in 2022, Scholz committed to raising Germany’s defense spending to NATO’s 2% of GDP target. He also introduced a 100 billion euro fund to upgrade the military. While this has helped meet the target, the fund will run out by 2027. Bavarian governor Markus Söder, a key conservative ally of Merz, voiced concerns over the evolving U.S. stance: “We are just as unsettled, and just as concerned, as large parts of our population.”

The Challenge of Germany’s ‘Debt Brake’

Germany’s constitutionally mandated “debt brake” limits new borrowing to 0.35% of GDP annually. However, the rule can be suspended during emergencies, as seen after the COVID-19 pandemic. Changing this rule will require a two-thirds majority in parliament. That may be difficult, as the far-right Alternative for Germany and the hard-left Left Party together hold more than one-third of seats. Alternative for Germany strongly supports the debt brake, while the Left Party opposes it but remains skeptical of increasing military spending. Until the new parliament convenes in late March, the outgoing parliament remains in session. The proposed coalition will need support from at least one other party, either the environmentalist Greens or the pro-business Free Democrats, to pass the measures. However, the Free Democrats have already criticized the idea of taking on more debt.

Future Economic Strategy

Lars Klingbeil, co-leader of the Social Democrats, said his party and Merz’s conservatives agreed to reform the debt brake by the end of 2025 to allow more investment. Merz believes the infrastructure package will encourage significant private investment. He also stressed the need for swift improvements to Germany’s competitiveness. Although both sides still need to finalize many details, forming a coalition is likely. No other politically viable combination of parties could establish a new government.