Expected to take office as the next chancellor of Germany, Merz has reached an agreement with the Green Party on a 500 billion euro fund to boost 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 significant increase in public borrowing. The Christian Democratic Union (CDU) leader Merz had been seeking the approval of the German parliament for a 500 billion euro fund to revive economic growth and increase military spending. Among his demands was also a relaxation of the “debt brake,” introduced in 2009, which limits government borrowing to 0.35 percent of the country’s Gross Domestic Product (GDP) for certain defense expenditures. The coalition negotiations between the Christian Union (CDU/CSU) parties and the Social Democratic Party (SPD), which started to form a new government after the general elections, are expected to be supported in the Federal Parliament on March 18 with a defense and investment package prepared by the parties. The agreement exempts defense spending exceeding 1 percent of GDP from the debt brake. GREENS NEEDED

On March 4, CDU/CSU and SPD had agreed on amending the constitution to relax the debt brake for higher defense spending and establishing a 500 billion euro fund for urgently needed investments in infrastructure. An amendment to the relevant article in the constitution is required to relax the debt brake. However, in the Federal Parliament, the Greens were needed as CDU/CSU and SPD did not have the necessary number of seats to change the constitutional article. Discussions on the defense and investment package will be held on March 18 at the Federal Parliament. Following the announcement of the agreement, the DAX 40 index showed an increase of approximately 2 percent, while Germany’s 10-year bond yields rose. The Euro also gained value against the dollar.