Germans Reach Deal to Spend Big on Defense, Climate and More

Friedrich Merz, the likely next chancellor of Germany, announced on Friday that he had secured the votes to allow for extensive new government spending, including for defense, clearing the way for a stunning turnabout in German strategic and fiscal policy before he even takes office.

The deal should now allow Mr. Merz to pass a raft of measures in Parliament next week that he has billed as a response to President Trump’s moves to pull back American security guarantees for Europe.

It includes what party leaders called crucial investments in German competitiveness and its efforts to reduce fossil fuel emissions to fight global warming. And it breathed new life into a coalition of center-left and center-right parties that have long governed Germany but have wilted in a new era of populism in recent years, losing votes to the far left and the far right.

The measures would lift Germany’s hallowed limits on government borrowing as they apply to military spending. It would exempt all spending on defense above 1 percent of the nation’s gross domestic product from those limits, and it would define “defense” broadly to include intelligence spending, information security and more.

Effectively, that would allow Germany to spend as much as it can feasibly borrow to rebuild its military.

“There will no longer be a lack of financial resources to defend freedom and peace on our continent,” Mr. Merz said, adding: “Germany is back. Germany is making a major contribution to defending freedom and peace in Europe.”

The deal was the product of days of negotiations between Mr. Merz’s center-right Christian Democrats, the center-left Social Democrats and the center-left Green Party. The Greens were the final holdout, and their support was announced on Friday.

Lars Klingbeil, one of the leaders of the Social Democrats, called the agreement “an important signal to Ukraine. It is an important signal to Vladimir Putin and an important signal to Donald Trump.”

The Green Party posted on X that the agreement would immediately provide Ukraine with 3 billion euros in support, and that the deal “finally takes the challenges of the future seriously.”

A longstanding German aversion to large-scale government borrowing became the country’s signature economic policy in the aftermath of the 2008 financial crisis. But years of constrained spending contributed to a long-running decline in the quality of the nation’s infrastructure and held back economic growth.

Equally important, Germany’s inability to spend has inhibited it from taking a stronger leadership role in an era of new security challenges to Europe, including the threat of an aggressive and expansionist Russia on Europe’s doorstep and an American pullback from its military commitments on the continent.

All that can now change — as Mr. Merz and others say it must.

“The next federal government will have little choice but to make massive public investments in defense capabilities,” economists from the Deutsche Bank Research Institute wrote this week. “In addition to increasing traditional defense spending, this also requires investments in the country’s critical infrastructure.”

After Russia invaded Ukraine three years ago, the current chancellor, Olaf Scholz of the Social Democrats, called for a strategic pivot on military spending. The country borrowed more for defense, but its progress was still relatively slow. In February’s election campaign, Mr. Merz and his center-right Christian Democrats called for even more money for defense but said they would find other savings in the budget to offset it.

Mr. Merz shredded those promises almost immediately after his party finished first in the vote, citing threats by President Trump and his administration to pull back America’s security umbrella for Europe. He entered negotiations to form a government with the Social Democrats, and they quickly agreed to a deal to dramatically increase borrowing and spending.

But in the end, he also needed to win support from the Greens to cement the two-thirds majority needed to change the German debt limit. The negotiations proceeded at a rapid clip, particularly by German standards, because Mr. Merz and his partners only have the votes to approve the measures in the current Parliament, which disbands at the end of the month.

To win support from the Greens and Social Democrats, the agreement includes a large new domestic spending fund.

Financed with borrowed money excluded from the constitutional debt limit, the fund would spend 500 billion euros (approximately $544 billion) over the next dozen years to improve dilapidated infrastructure, an investment that economists have long said Germany needs to kick-start an economy that shrank last year.

Lawmakers will decide how to spend that money exactly, but under Mr. Merz’s agreement with the Greens, 100 billion euros from it will be earmarked for a second, existing fund that addresses climate change.

That was the major demand of the Greens, who earlier this week threatened to block Mr. Merz’s measures without them. The Greens also secured an accord that money from the infrastructure fund would only be used for new projects to strengthen the economy and the climate, and not existing ones.

Mr. Merz called the agreement “a good result acceptable to all parties involved.”

Both he and Mr. Klingbeil suggested their full party membership would back the measures when they come to the floor of the Bundestag next week.

The moves could still face legal challenges from parties on the far left and the far right, which have questioned the constitutionality of moving so quickly to ram the deal through the lame-duck session.

But on Friday, the negotiators all sounded relieved. Mr. Klingbeil said the talks with the Greens had improved the deal from its original form between the Social Democrats and Christian Democrats, and that the final agreement flexed the strength of Germany’s center.

“We are showing government and opposition, perhaps the future government, perhaps the future opposition, that we are acting together responsibly, that we are joining forces,” he said.