Who wants to be a trillionaire? That is the question German MPs face on Thursday at a Bundestag sitting promising to be extraordinary in more ways than one.
Germany’s federal parliament is meeting to debate borrowing at least €1 trillion to invest in Germany’s crumbling public infrastructure and deficient defence capabilities.
It is a remarkable moment given Germany’s deep-rooted cultural aversion to debt, and seasoned Bundestag watchers are readying their popcorn.
The session has been called by Friedrich Merz, the 69-year-old centre-right politician who hopes to be elected chancellor by the new Bundestag around Easter, after his Christian Democratic Union won last month’s federal election.
His party is still deep in coalition talks with the centre-left Social Democratic Party and the new parliament, elected by voters last month, is not set to meet until March 26th. Instead, to back almost €1 trillion in borrowing, Merz is recalling the old Bundestag, which just happens to be where Germany’s mainstream parties have the two-thirds majority of MPs necessary to change the so-called debt brake.
This instrument limits Germany’s structural deficit to 0.35 per cent of GDP and, as recently as last month’s election campaign, was held up by the CDU as a holy monstrance of sustainable public finance.
“The debt brake ensures our children and grandchildren are not overburdened,” the CDU election manifesto reads, “and forces politicians to make do with state income to fulfil state tasks”.
For 20 years CDU fiscal policy has been based on a familiar and, to many German voters, comforting, metaphor of running the state sensibly like a thrifty Swabian housewife who makes do with what her husband brings home.
No more. Just 10 days after his CDU election victory, Merz announced the death of the Swabian housewife in a spectacular political U-turn. “In view of the threats to our freedom and to peace on our continent,” Merz said, “what applies now to our defence is the motto: Whatever it takes.”
With an eye on Donald Trump’s Nato threats, the Merz plan will permit effectively unlimited spending on defence. But his SPD likely coalition partners agreed to that only if his CDU backed a €500 billion special fund to invest in long-neglected public infrastructure over the coming decade and revive Germany’s flatlining economy.
The Merz CDU shift is equal parts gratifying and frustrating for the SPD and its old Green coalition partners who, for three years, warned an uninterested CDU that the debt brake’s aim of sustainable state finances in the future was causing unsustainable harm in the present.
Unheeded, too, went their warning that the window for change was closing. As they predicted, the new Bundestag has a potential blocking minority to constitutional – and debt brake – change, in particular because of a surge in support for the far-right Alternative for Germany (AfD).
It opposes debt brake reform and, sensing opportunity, filed an injunction at the federal constitutional court demanding a halt to Thursday’s sitting, which it calls a “fiscal coup d’etat”.
Legal experts say the Karlsruhe court, in a ruling expected next Tuesday, is likely to reject the AfD application by pointing out that the old Bundestag still exists until the new Bundestag is convened.
Despite that last-minute blessing, Merz aides remain nervous. They joke that, with his U-turn, their boss is channelling his predecessor Konrad Adenauer, the first postwar (West) German chancellor, and his apocryphal quote: “Who cares about my blather from yesterday?”
Quite a few people, as it happens, such as the 208 CDU MPs elected last month after telling their millions of voters that Germany’s looming challenges could be financed by judicious reforms and budget cuts – not €1 trillion in fresh borrowing.
One senior CDU politician admits “huge disquiet” among his voters, too, about the optics: the borrowing/investment agreement with the SPD came days before last weekend’s tough new migration/asylum agreement as demanded by the CDU.
CDU officials agree that it looks as if the SPD, after its worst-ever election, has the CDU over a barrel on borrowing.
The reason for the U-turn, Merz aides say, was the need to move quickly ahead of last Thursday’s emergency European Council meeting. Amid huge uncertainty over Ukraine, Trump and Nato, Merz expedited the defence-investment plan so that outgoing SPD chancellor Olaf Scholz had €1 trillion to put on the table in Brussels.
Senior CDU politician Gunther Krichbaum says massive off-balance sheet borrowing is “not unproblematic” but justified given growing uncertainty. “Don’t forget the debt brake will still apply to the regular federal budget,” he said. “Germany hasn’t given up budgetary discipline completely.”
The Green Party withheld its support until the last minute, demanding extra climate initiatives in the new borrowing plan. But in advance of Thursday’s first reading, and next week’s final vote, senior SPD politicians hope they’ve seen the last of the Swabian housewife.
“With Trump and Putin we are in uncharted waters, meaning we need to react differently, too,” said Axel Schäfer, an SPD politician summoned back from retirement for this extra-time vote. “A time like this is neither a time for the Swabian housewife nor trying to run the world’s third-largest economy like a regional savings bank. Germany can easily grow out of this new debt.”
