Germany's Friedrich Merz faces rocky road to lift debt brake rules

Germany's Christian Democratic Union (CDU) leader Friedrich Merz on Thursday made concessions to the Green Party in the hopes it would lend critically important votes to his multi-billion-euro spending spree.

Merz and the CDU, alongside would-be coalition partners, the Social Democratic Party (SPD), unveiled their plans last week to lift Germany's "debt brake", which was written into Germany's constitution in 2009 at the height of the global financial crisis. It tightly restricts the government's ability to borrow new money.

Over the years, the country's strict fiscal rules have created headaches for successive governments as they tried to raise funds to respond to crises. It was suspended in 2020 as the state tried to deal with the Covid-19 pandemic, and in 2024, a spat over its reform led to the breakdown of the country's three-party ruling coalition.

Last week, the CDU and the SPD proposed exempting defence spending that exceeds 1% of Germany's GDP from the debt brake, which currently sets the structural deficit at a maximum of 0.35% of the country's GDP.

The proposal would also set up a €500 billion fund to invest in Germany's creaking infrastructure over the next decade, as well as loosen borrowing rules for Germany's sixteen states.

But the Greens, who have long argued for reform of the debt brake, are now standing in Merz's way. Although the party supports changing the debt brake, it argues the proposals on the table do not address the need to invest in Germany's clean energy transition.

The Greens have offered their own draft law, one which expands the definition of "defence" and draws more on funds from within the government's current budget.

On Thursday, Merz and the SPD attempted to appease the Greens by