Germany's Coalition Agrees to 500 Billion Euro Debt Overhaul

Germany's potential next government coalition, led by Friedrich Merz's conservatives and Chancellor Olaf Scholz's Social Democrats, is planning a significant economic overhaul that includes a proposed 500 billion euro infrastructure fund and revisions to the country's borrowing regulations. The coalition aims to exempt defense spending exceeding 1% of GDP from existing borrowing limits, known as the 'debt brake,' in an effort to bolster military capabilities and stimulate economic growth amid a backdrop of declining economic performance and increased defense needs. The Bundesbank has proposed raising the borrowing limit to 1.4% of GDP if debt remains below 60%, which could provide an additional 220 billion euros for investments over the next decade. This fiscal flexibility is deemed urgent, especially following the recent U.S. pause in military aid to Ukraine. Critics of the current debt brake argue it has stifled necessary investments across various sectors. The coalition's proposals will be presented to the Bundestag for parliamentary approval next week.