The News
Germany’s likely next chancellor pledged to upend strict rules on government borrowing to drastically increase defense and infrastructure spending, a surprise move by a leader seen as fiscally conservative.
Friedrich Merz, whose center-right party won last month’s general election, announced a deal with his likely coalition partners to relax Berlin’s stringent borrowing rules to fund the investment.
“Europe needs to strengthen defense,” Bloomberg quoted Merz as saying. “The necessary decisions, especially with regard to the federal budget, can no longer be postponed after the recent choices of the American government.”
The money raised would fund 500 billion euros ($535 billion) in extra infrastructure spending and hundreds of billions more on defense, a decision Deutsche Bank economists characterised as “one of the most historic paradigm shifts in German postwar history.”
Merz had presented himself as a fiscal conservative during the election campaign. A Handelsblatt columnist described the about-face as “dizzying”. Investors were wary: The yield on Germany’s 10-year bond jumped the most since 2020 on the news.
