Focus on Germany’s state governments as €500 bln infrastructure package awaits adoption

The plan to reform Germany’s debt brake to allow greater defence spending and set up a 500-billion-euro special fund for infrastructure faces another hurdle in the country’s council of federal state governments, the Bundesrat, after likely next chancellor Friedrich Merz has already made a deal with the Green Party to secure a majority in the national parliament (Bundestag).

By promising to earmark 100 billion euros from the special fund for climate action, Merz’s coalition government-in-waiting of the conservative CDU/CSU alliance and the Social Democrats (SPD) secured the support of the Greens that was required to achieve the two-thirds majority in the outgoing Bundestag. The vote in parliament is expected on Tuesday (18 March) and Merz so far has been confident to get the required support, even though the package and the reformed debt brake are unpopular among parts of his own party, which campaigned on the promise of fiscal discipline.

On Friday (21 March), the Bundesrat will have to decide on the spending package, as the changes also affect state budgets. A two-thirds majority again is required among the 16 state governments that are made up of various coalitions of the CDU/CSU, the SPD, the Greens, the Left Party, the nationalist-left BSW, the pro-business FDP and the conservative Free Voters. The Free Voters could be tipping the balance in the Bundesrat, the Süddeutsche Zeitung reported: The party forms a coalition government in Bavaria with the conservative CSU, the sister party of Merz’s CDU. Governments consisting solely of the CDU/CSU, the SPD or the Greens together have 41 votes out of the 69 in the council and the package needs 46 votes to be adopted – the Free Voters’ consent in Bavaria would suffice to get it across the line.

Merz said he was “very confident that everyone involved from Bavaria knows about their responsibility” for the entire country. Bavarian CSU head Markus Söder was set to meet with his coalition partner’s leader, Hubert Aiwanger, to discuss how the affluent state should use its six votes in the Bundesrat, public broadcaster BR reported. In their coalition treaty adopted in 2023, the CSU and the Free Voters had rejected taking on new debt and explicitly ruled out bypassing the debt brake through a special fund. However, Söder said “Bavaria won’t be the problem here”– and the Free Voters last week signalled their openness to adopting the package despite their reservations.