Germany's Bundestag passed a comprehensive fiscal package that includes reforms to entrenched debt policies, enabling increased defense spending and the creation of a EUR500 billion infrastructure and climate fund. The legislation received 513 votes in favour, surpassing the required two-thirds majority, and now awaits approval from the Bundesrat to be enshrined in the constitution.
Under the new laws, defence and certain security expenditures exceeding a specified threshold will no longer be constrained by the "debt brake," a mechanism that restricts governmental debt accumulation and defines the federal government's structural budget deficit. Additionally, loans procured for the infrastructure fund will be exempt from the debt brake, providing Germany's federal states with enhanced flexibility regarding debt management.
This legislative change represents a departure from Germany's traditional fiscal conservatism, aiming to address underinvestment in critical sectors. The EUR500 billion fund is designated for modernising hospitals, schools, roads, and energy networks over a 12-year period, while defense spending is set to increase significantly.