German upper house of parliament clears borrowing bonanza

On Friday, Germany’s Bundesrat, the upper chamber of parliament, endorsed proposals for a spending spree designed to stimulate growth in Europe’s largest economy and enhance military capabilities, removing the last obstacle for the significant fiscal policy change. The decision in the Bundesrat, which represents Germany’s 16 federal states, was the final significant obstacle the package needed to overcome before being enacted into law, marking the conclusion of decades of fiscal conservatism in Europe’s biggest economy.

The law, establishing a 500 billion euro ($546 billion) fund for infrastructure expenditure and relaxing stringent borrowing regulations to permit increased defense spending, was approved by the Bundestag lower house on Tuesday. The conservatives and SPD, currently negotiating a coalition following last month’s election, expedited its passage in the outgoing parliament to prevent potential obstruction from a larger group of far-left and far-right lawmakers in the new Bundestag commencing on March 25.

Chancellor-in-waiting Friedrich Merz has justified the strict schedule, which upset minor opposition groups, by highlighting the swiftly evolving geopolitical circumstances.

European leaders are concerned that changes in U.S. policy, especially under President Donald Trump, might leave the continent vulnerable to a more aggressive Russia and a more assertive China.

“The threat from the East, from Moscow, is still present, while the support from the West is no longer what we were once accustomed to,” said Bavarian Premier Markus Soeder.

“I am a convinced transatlanticist, but the relationship of trust in the United States of America has, at least for me and for many others, been deeply shaken. The Germans are worried.”

The approval of the legislation hands Merz, whose conservatives won last month’s election, a major win before he is even sworn in as chancellor.

However, it has also resulted in a loss of support for him. Merz conducted the election campaign vowing not to quickly unleash spending, only to reveal a significant change in fiscal policy days after his victory.

Several voters, including those from his own faction, have alleged voter fraud against him, and surveys conducted in the past week indicated a decline in support for his conservatives alongside an increase for the far-right Alternative for Germany. The 69-year-old, whose party secured victory in last month’s elections, aims to finalize coalition discussions with the SPD by Easter.