The likely next chancellor of Germany, Friedrich Merz, announced on Friday, March 14, that he had secured enough votes to enable a massive new expenditure plan aimed at infrastructure and defense investment. By the following week, on Tuesday, March 18, that plan – which loosens borrowing limits and enables the government to take on more debt – had been approved in the Bundestag.
“This is the beginning of a new era for Europe and Germany”, says German defense minister Boris Pistorius. Today, the German Bundestag is voting on a constitutional reform to allow €500 billion in new public spending. pic.twitter.com/SKxswMTg7f
— DW Politics (@dw_politics) March 18, 2025
For over two decades, Germany’s constitutional amendment – the so-called “debt brake” (or Schuldenbremse) -prohibited governments at the federal and state levels from borrowing more than 0.35 percent of GDP each year.
This measure was instituted following the global financial crisis of 2008, and – while generally politically popular in a country with deep-rooted fears of hyperinflation dating back to the collapse of the Weimar Republic – constrained spending on the nation’s infrastructure and defense.
Of those two areas of government investment, the latter is far less popular than the former in Germany.
Hence Merz was able to rally together enough votes from his center-right Christan Democratic Union-Christian Social Union in Bavaria (CDU/CSU) political bloc, the center-left Social Democrats (SPD), and the left-leaning Greens around the idea of a €500 billion ($545 billion) spending package for infrastructure investment, with €100 billion ($109 billion) of that earmarked for meeting climate change goals and the transition to green energy.
The special fund for infrastructure was vital to getting the spending deal passed as the clock ticks on the arrival of a new parliament following the country’s recent federal election in February.
Once that parliament – not the caretaker legislature Merz and his allies used to circumvent traditional governing norms by holding a historic vote in a dead parliament – is seated in the Bundestag there will no longer be a borrowing limit for defense.
In short, redefining government expenditure via public borrowing was going to have to first come with sweeteners before holding any vote in the Bundestag – without them the initiative would have been dead upon arrival.
That failure would have been more resounding if voted upon under the incoming parliament set to take their seats on March 25. The new parliament will feature two parties – the far-right AFD and far-left Die Linke (The Left) – who are dead set against continuing to arm Ukraine (each, for different reasons, also opposed lifting the debt brake) and who together would have enough votes to block the spending package.
This is why Merz – who has officially yet to take office and needed the outgoing caretaker government’s support – was so eager to get the spending package and constitutional amendment measure passed, as the unorthodox end-run around democratic norms will likely reverberate politically in the coming years.
But now with clearance to put more money into defense – thanks to language in the spending plan that rules any defense spending above 1 percent of GDP is exempt from the strictures of the debt brake – there are no more excuses in Berlin for failing to meet minimum NATO budgeting requirements.
Instead, under the new arrangement all military spending exceeding 1 percent of GDP will be exempted from the constraints of the constitutional debt brake. This provides Merz with plenty of room to increase Germany’s annual defense spending and help revive and rebuild the country’s military (Bundeswehr) after decades of neglect.
Further, it means a new aid package being arranged for Ukraine to the tune of €3 billion ($3.3 billion) could be released to Kiev soon.
All this heralds a new chapter for Germany, as it seeks to take its place in a Europe confronted by a changing security environment, while its longtime security benefactor – the United States – shifts its attention and strategic priorities to the Asia-Pacific region.
Merz and his next government will look to work with its European Union partners to synchronize defense procurement and push for greater integration of defense industrial capabilities across borders. As the EU’s largest country and economy, Germany now finds itself in the heretofore awkward position of being a leader on European security.
For that to happen, however, consistency and political willpower will need to match all the public pronouncements by Merz about “Germany is back.”
Currently the baseline German defense budget is around €52 billion ($56.8 billion), notwithstanding the last of the legacy special defense fund (Sondervermögen) coordinated under the outgoing government of Olaf Scholz following the launching of Russia’s invasion of Ukraine in February 2022. That €100 billion ($109 billion) investment package runs out in 2027, and all remaining funding is expected to be allocated by the end of this year.
Without the special fund and Ukraine support included in topline spending the German defense budget represents about 1.2-1.3 percent of GDP. As pointed out here several weeks ago, the additional funding required for Berlin to reach and maintain the NATO minimum investment threshold of 2 percent of GDP are eye-watering – roughly €25-30 billion ($26-31 billion) in additional spending every year.
And that is merely to meet the 2 percent of GDP target – not the new benchmarks being discussed in Europe of raising this floor to 3.5 percent of annual GDP.
So now the real work begins, and all happy talk in the media aside, it will indeed require heavy lifting.
First, Germany continues to struggle greatly with military recruiting – unsurprising in a nation with a post-Second World War pacifist outlook. For Germany to become a leader in European security this will need to be rectified, and soon.
Next, Berlin will need to determine whether its the so-called 25 million bill requirement – whereby any project costing at least EUR25 million is subject to a separate approval by the Budget Committee of the Bundestag – remains sensible at a time the main goal is rapid modernization.
Finally, once the next government takes office and parliament is seated, Merz will need to have unanimity in his coalition to ensure extra financing for defense continues to flow. While defense received an exemption from the debt brake under the arrangement approved, parliamentary oversight of the budget itself is still required and specific funding allocations subject to processes within the Bundestag.
Major equipment requirements in terms of drones, artillery, long-range strike capability, command-and-control (C2) and intelligence-surveillance-reconnaissance (ISR) are pressing.
All of this, too, remains tied to economic, fiscal and political realities. A German public forced to choose between guns and butter, funding the unpopular Bundeswehr over the social welfare net, or subjected to higher taxation to meet multiple government demands, might not be thrilled two years from now. Particularly if the war in Ukraine ends or the German economy continues to sputter.
But for now the latest news is most certainly positive for the Bundeswehr and for German defense primes such as Rheinmetall, Diehl Defense, KNDS Deutschland, and ThyssenKrupp Marine Systems (TKMS). Indeed, for the first time in a very long time the outlook appears sunny for German defense.
If the Bundeswehr is to once again become a respectable military force and Germany to finally take its place as a leading EU security nation the years ahead will need to remain clear, with little to no cloud cover.
Dan Darling is Forecast International’s director of military and defense markets. In this role, Dan oversees a team of analysts tasked with covering everything from budgeting to weapons systems to defense electronics and military aerospace. Additionally, for over 17 years Dan has, at various times, authored the International Military Markets reports for Europe, Eurasia, the Middle East and the Asia-Pacific region.
Dan's work has been cited in Defense News, Real Clear Defense, Asian Military Review, Al Jazeera, and Financial Express, among others, and he has also contributed commentary to The Diplomat, The National Interest and World Politics Review. He has been quoted in Arabian Business, the Financial Times, Flight International, The New York Times, Bloomberg and National Defense Magazine.
In addition, Dan has made guest appearances on the online radio show Midrats and on The Media Line, as well as The Red Line Podcast, plus media appearances on France 24 and World Is One News (WION).
