Merkel faces resistance to loosening German fiscal rules: Green Party rejects defense spending plans, constitutional amendment road difficult

Germany's government is currently pushing for a constitutional amendment to repeal the debt brake and establish a 500 billion euro (541 billion USD) infrastructure fund. This reform aims to address the dual challenges of changing international security situations and inadequate domestic infrastructure investment in Germany. The "debt brake" policy implemented in 2009 limited the government's annual borrowing to 0.35% of GDP. This mechanism has long restricted the government's investment capacity and directly led to the collapse of the previous government in September last year. While Chancellor-elect Merz promised to maintain fiscal discipline during his campaign, the lingering impact of former US President Trump's wavering NATO commitments forced Germany to reexamine its defense spending policy. Amending the constitution is not set in stone. Merz must first obtain an absolute majority support from both houses of parliament, and he hopes to achieve this goal before the new government takes office on March 25. Legal battles also loom, as both the Left Party and the Alternative for Germany (AfD) oppose the plan, with far-right members already filing lawsuits. Green Party rejects new legislation On March 10, the Green Party threatened to block the agreement unless more favorable conditions were met. They also expressed willingness to engage in further negotiations. The Green Party vetoed a draft debt financing plan that would release billions of euros for defense and infrastructure spending, potentially jeopardizing Merz's ability to secure the absolute majority vote required for the bill's passage. Merz had sought the Green Party's support to ensure the three-quarters majority needed for the constitutional amendment. As NATO partners accepted debt spending in the wake of Trump's disruptions to transatlantic relations, they saw it as a way to strengthen European defense. Green Party leaders harshly criticized the newly formed coalition government for excluding the party from discussions and ignoring Green Party priorities such as climate action. But the Green Party has also left the door open for further negotiations, stating that they will propose their own legislation. Merz's Christian Democratic Union and the Social Democratic Party are currently negotiating the formation of the next coalition government, and plan to meet with the Green Party later on Monday in Berlin. Katharina Droege, co-leader of the Green Party parliamentary group, stated that the party is prepared to negotiate a "genuine" reform of the constitutional debt limit, but preferably after the new lower or upper house convenes after March 25. In the new federal parliament, the far-right Alternative for Germany and the anti-capitalist Left Party will have enough votes to block the three-quarters majority required. Therefore, Merz and the Social Democrats are seeking a vote in the current parliament, which is due to be disbanded next week. The Christian Democratic Union and Social Democrats reached an agreement last week to effectively remove defense spending from Germany's debt limits and establish a 500 billion euro (543 billion USD) infrastructure fund. Germany's national debt continues to rise, with the yield on 10-year bonds dropping by 6 basis points to 2.77%. This partially reversed gains from last week, when yields saw their largest increase since the fall of the Berlin Wall. Meanwhile, the euro briefly gave up gains before rebounding. Green Party co-leader Felix Banaszak stated that the need for Germany to increase its defense spending has been clear since Trump's reelection, claiming that the sudden shift was a form of "blackmail." "We categorically reject these political calculations," he said, but also expressed willingness to negotiate. "For serious defense and security capabilities, we are willing to provide." Could this be the last act of the old parliament? Since the proposed bill involves amending the constitution, it requires a two-thirds majority in both houses of parliament to pass. To increase the likelihood of passage, Merz's conservative Union and the center-left Social Democrats have decided to introduce the bill before the new parliament convenes on March 25. Merz believes that the bill will be more easily supported in the current "old" parliament, as the Alternative for Germany and the Left Party do not have enough votes to block it. Both parties made significant gains in the February 23rd elections, and if they join forces in the next parliament, they can easily stop the amendment. In the current scenario, the Social Democrats and Merz's conservative party have been relying on Green Party support for the plan. The pro-business Free Democratic Party (FDP) has already stated that they will not vote in favor of taking on any new debt. The lower house of the German parliament is set to resume discussions on the plan on March 13. After committee members make adjustments to the amendment, the German Federal Parliament will hold a final vote on March 18. Extreme left and extreme right to sue Most legal scholars doubt the success of such lawsuits. The Alternative for Germany and the Left Party, at opposite ends of the political spectrum, both believe Merz's actions disregard the will of the people. The Alternative for Germany considers the vote illegal and has requested the President of the Federal Parliament to cancel the vote. Five members of the Alternative for Germany have already filed a lawsuit. The Left Party is considering whether to ask the Federal Constitutional Court to intervene. Cornelia Manger-Nestler, a law professor at Leipzig HTKW University, stated that the odds of victory are not in their favor. "The constitution is very clear: the term of the old Federal Parliament continues until the new Parliament convenes," she said. "The old parliament has full authority to act and will not be restricted in any way." She compared this situation to a vote in 1998 when the German Federal Constitutional Court "firmly upheld" the vote. At that time, legislators decided to send troops to Kosovo shortly after election day but before the new parliament convened. Bernd Grzeszick, a law professor at Heidelberg University, stated that voting hastily, as the conservative party and Social Democrats are proposing, will only create problems if the issues at hand are too complex to be adequately addressed in a short period of time. Given that there are already provisions in the constitution regarding earmarked funds, the proposed changes are not complex enough to meet the requirements. He said, "The debt brake is slightly more complex."Some may argue that it is necessary to postpone this measure, but it is not absolutely necessary.subsequent obstacles These proposals still need approval from the German second chamber, the Federal Council, which represents the 16 states of Germany. The vote is scheduled for March 21. Each state has between 3 and 6 votes based on its size, requiring 46 votes to achieve the necessary two-thirds majority. The voting representatives are members of the state governments, totaling 69 votes. Merkel's conservative party and the Social Democratic Party will have to rely on states led by different political parties to gain enough support. The Left Party and another left-wing faction BSW are members of four state governments, meaning these states are unlikely to support the plan. This could result in a loss of 14 votes as state governments typically vote in unison. The Free Democratic Party participates in two other states, totaling 8 votes. It is not yet clear how this party will influence these votes, but the party has long been opposed to changing debt brake policies. The Greens can also increase pressure through their role in state governments. Bavaria, with six votes, is governed by a coalition of the conservative party and the Free Voters. The Free Voters are a small party, occupying two seats out of six, and have indicated they may not support debt reform. This could lead to a split vote, as Bavarian Prime Minister Markus Soeder is the leader of the Christian Social Union, the sister party of Merkel's Christian Democratic Union, and he explicitly supports the plan. While split votes are still effective, they often disrupt state government alliances. Currently, the German constitution has detailed provisions on the amount of debt that can be incurred and the circumstances under which it can be incurred. In 2023, the Federal Constitutional Court made a ruling that shocked many political leaders in Germany with its strict interpretation of debt rules. If this situation remains unchanged, future governments led by Merkel will face many legal risks when raising additional funds.