Expected to take over the chancellorship in Germany, Merz has reached an agreement with the Green Party on a 500 billion euro fund to revive economic growth and increase military spending.

Political parties in Germany have agreed on a significant increase in public borrowing. Friedrich Merz, expected to be Germany’s next chancellor, reached an agreement with the Green Party on a substantial increase in public borrowing. Christian Democratic Union (CDU) leader Merz had been seeking approval from the German parliament for a 500 billion euro fund to boost economic growth and increase military spending. He also wanted the “debt brake,” which came into effect in 2009 to limit government borrowing to no more than 0.35% of the country’s Gross Domestic Product (GDP), to be relaxed for certain defense expenditures. The agreement is expected to have the Green Party support the defense and investment package prepared by the Christian Union (CDU/CSU) parties and the Social Democratic Party (SPD) in the Federal Parliament on 18 March after the general elections to form a new government. The deal exempts defense spending exceeding 1% of the GDP from the debt brake. GREENS NEEDED

On March 4th, CDU/CSU and SPD had agreed on amending the constitution to relax the debt brake for higher defense spending and to establish a 500 billion euro fund for urgently needed investments in infrastructure. Changing the relevant article in the constitution is necessary to relax the debt brake. However, since CDU/CSU and SPD do not have enough seats in the parliament to change the constitutional article, the Greens were needed. Discussions on the defense and investment package will take place in the Federal Parliament on March 18th. Following the announcement of the agreement, the DAX 40 index rose by about 2%, and the yield on Germany’s 10-year bonds increased. The Euro also gained value against the Dollar.