German parliament adopts reform to allow €500 bln new debt for infrastructure and climate

Germany's parliament has adopted a constitutional reform to allow the country to take up hundreds of billions of euros in new debt to finance defence, infrastructure and climate investments. The reform, which must still get the green light from federal state governments on Friday this week, allows the government to borrow more money through reforms and exemptions to the so-called "debt brake." Defence expenditures beyond one percent of national GDP will not count towards the debt limit, and neither will a new 500-billion-euros special fund for additional infrastructure and climate investments. The necessary two-thirds majority was reached, as 513 of the Bundestag’s 733 lawmakers voted in favour, with zero abstentions.

The vote marked a crucial step on the path towards a new coalition government under a chancellor Friedrich Merz, whose conservative CDU/CSU alliance had proposed the fund together with the Social Democrats (SPD). The funding is considered as a key requirement for the next government to respond to a wide range of challenges, including security, climate action, and economic revival.

SPD leader Lars Klingbeil called the vote a “historic decision,” adding that it marked “positive new beginning” for both Germany and Europe. Likely future chancellor Friedrich Merz argued that “a need for infrastructure renewal has built up over decades,” and cautioned that the next government would still have to implement budget savings even with today’s decision.

The agreed reform of the constitution says that the federal government can fill a special fund with borrowed money “for additional investments in the infrastructure and additional investments into reaching climate neutrality by 2045 with a volume of up to 500 billion euros.” Spending would count as additional if an “appropriate” investment level is reached in each regular annual budget, the text says. CDU/CSU, the SPD and the Greens defined that this is the case if 10 percent of the regular budget is earmarked for investments. New debt could thus be used for infrastructure and climate investments beyond this amount.

Funds can be distributed over a period of twelve years and 100 billion euros are moved directly into the Climate and Transformation Fund (KTF), the government’s main vehicle for energy transition investments. Further details would then be spelled out in a law.

Environmental NGO WWF Germany said that the special fund "harbours great potential for climate protection in Germany." The next government had to insure that the new debt would not be used for investments that created fossil fuel lock-in effects, such as building new motorways.

Simone Peter, head of renewable industry association BEE, called the decision "a strong sign of Germany's political ability to act." It enabled forward-looking expenditure on climate protection technologies, energy grids and the energy transition as a whole.

Senior members of the CDU/CSU, the SPD, and the Greens expected prior to the vote that only very few of their members would defect from the party line and reject the package. The three parties had 31 more votes than were needed for the two-thirds majority in the outgoing parliament, which held its last scheduled session on Tuesday. This will not be the case in the new parliament that convenes for the first time on 25 March, where the far-right Alternative for Germany (AfD) and the Left Party together have a blocking minority for changes to the constitution.

The proposal still needs to be adopted by Germany’s council of state governments, the Bundesrat, where a vote is expected on 21 March. While a multitude of different coalitions at the state level complicate consensus finding in the council, state leaders have signalled that they are confident a two-thirds majority can be secured also in this vote.