German centre-right leader Friedrich Merz faces a political showdown on two fronts over drastic plans to loosen deficit spending rules to allow substantial defence and infrastructure spending.
The proposals, agreed by his centre-right Christian Democratic Union (CDU) with its likely future coalition partners, the Social Democratic Party (SPD), late on Tuesday, would allow Berlin to borrow €500 billion over the coming decade for infrastructure investment and, in effect, unlimited funds for defence.
At a closed-door parliamentary party meeting, Mr Merz told CDU MPs the move was necessary because of Germany’s deteriorating budgetary situation and growing security risks.
Many leading MPs, re-elected 10 days previously on a promise to leave borrowing rules untouched, aired their frustration over the party’s political credibility.
“We promised the exact opposite in the election campaign,” Ralph Brinkhaus, former CDU parliamentary party leader, said.
For Johannes Winkel, head of the CDU youth wing, embracing borrowing instead of the promised economic and fiscal reform represented “a considerable defeat” for his party.
More than 20 CDU parliamentarians spoke out at the meeting to challenge what one called a “black box”, worth at least €1 trillion, with no clear criteria on how the loans will be invested.
Despite the criticism, CDU parliamentary party leader Thorsten Frei said the party “was united in backing Friedrich Merz” and his plan.
At a Bundestag sitting next Thursday, MPs will be asked to amend the German constitution to allow €500 billion borrowing for infrastructure spending. Another motion will allow Berlin exclude all defence expenditure above 1 per cent of economic output from existing “debt brake” rules.
Separately, a commission of experts will develop proposals to end the need for ad hoc measures by overhauling the debt brake, limiting Germany’s structural deficit to 0.35 per cent of GDP.
The spending plans dominated traditional Ash Wednesday beer tent gatherings of political parties in Bavaria.
While Mr Merz cancelled his planned appearance, Markus Söder, Bavarian premier and head of the CDU-allied CSU, defended a borrowing U-turn that, he said, reflected shifts in global politics and “sent a signal not just to our friends but also to our enemies”.
“What has played out in the last weeks in the USA has shaken our fundamental trust,” he said, “but we will train our muscles and find new strength.”
An opinion poll on Wednesday said 49 per cent of Germans supported a more liberal debt brake while 28 per cent opposed reform.
It is not yet a given that the new spending plans will pass in next week’s emergency Bundestag sitting. Reconvening the last parliament is necessary to ensure a two-thirds supermajority to change the constitution.
A surge in support for the far-right and hard-left parties at last month’s election means mainstream parties lack this super majority in the new Bundestag, due to convene for the first time later this month.
To pass, the CDU/CSU and SPD will need to lobby for votes from the Green Party. Its co-leader, Felix Banaszak, said the U-turn proved voters were “told fairytales” by Mr Merz about Germany’s fiscal needs.
“Either Merz has no clue, no modesty or both,” he said, demanding additional climate measures in return for Green backing next week.
While the Greens haggle, the far-right Alternative for Germany (AfD) may take legal action against the plan along with the hard-left Linke party.
Berenberg bank economist Holger Schmieding spoke for many financial analysts calling the move a “fiscal sea change” and a “really big bazooka” for Germany.
