Germany – Agreement on massive fiscal package
CDU/CSU and SPD have agreed with the Greens on some changes to their financial package.
Dr Ralph Solveen
Commerzbank Economic Research
03/14/2025
The term “defense spending,” which is to be largely exempted from the debt brake, is being defined much more broadly. This in itself increases the future coalition's fiscal leeway. However, the possibilities of shifting other investments to the new infrastructure fund and thus creating more leeway in the regular budget are limited. At the same time, 100 billion euros of the total 500 billion euros in special funds are to be channelled into the climate and transformation fund. This agreement should ensure the Bundestag's approval on Tuesday. The Bundesrat must also give its approval next Friday, which is likely.
CDU/CSU and SPD reach compromise with Greens
CDU/CSU and SPD today reached an agreement with the Greens on changes to their financial package. According to current reports, this includes the following points:
- The definition of defense spending, a significant portion of which will no longer be included in the debt brake in the future, will be significantly expanded. In the future, spending on intelligence services and on aid for states attacked in violation of international law will also be considered defense spending. This means that aid for Ukraine also falls under this item. However, since – unlike the Greens' original proposal – the limit of 1% of gross domestic product, up to which expenditure is subject to the debt brake, will not be raised at the same time, this in itself increases the fiscal leeway of the future government.
- The planned special fund for infrastructure investments will continue to comprise 500 billion euros. These are to be spent over the next 12 years and not – as originally planned – over 10 years. In addition, one fifth of the fund – or 100 billion euros – is to be allocated to the climate and transformation fund (KTF). It has not yet been decided which projects will be supported or financed with this money. In the past, the KTF was used to pay subsidies for electric cars, but also for the steel industry and chip factories. Another 100 billion euros will continue to flow to the federal states and local authorities. The remaining 300 billion euros of the special fund are to be used for infrastructure investments, although the definition of investments is very broad. To ensure that this is actually used to finance additional investment, the plan is that money from this special fund can only be used if the corresponding investments in the regular budget exceed 10% of total expenditure, which would have been around €45 billion last year. The extent to which shifts from the regular budget to the special fund are still possible and additional leeway can be created in the regular budget in this way will depend on the definition of the term “infrastructure”.
For full text see attached PDF-Version.
