Germany’s lower house of parliament is poised to vote on Tuesday on a significant increase in borrowing, a move designed to invigorate Europe’s largest economy and drive regional growth despite ongoing trade frictions with its primary partner, the United States.
The conservatives and Social Democrats (SPD), currently negotiating a centrist coalition following last month’s election, aim to establish a €500 billion ($546.05 billion) fund dedicated to infrastructure development and to amend constitutional borrowing limits, enabling greater investment in security.
If enacted, these measures would mark a dramatic departure from Germany’s longstanding fiscal restraint, which has been partly blamed for the country’s economic downturn over the past two years. The proposed shift has already had a ripple effect, boosting eurozone bond yields, strengthening the euro, and propelling European stock markets upward. On Tuesday, Germany’s blue-chip index led the charge, climbing 1% as of 0917 GMT.
On Monday, leaders of the conservatives, SPD, and Greens expressed confidence in securing the two-thirds majority necessary to amend the constitution and implement the financial overhaul.
"For over a decade, we have been lulled into a false sense of security," remarked Conservative leader and Germany’s likely next Chancellor, Friedrich Merz, during Tuesday’s parliamentary session. "Today’s decision on defense preparedness must be seen as the first step toward a new European defense alliance."
Germany and other European nations have faced mounting pressure to bolster their defense capabilities in response to a more aggressive Russia and shifting U.S. policies under President Donald Trump, which European leaders fear could leave the continent vulnerable.
The Bundestag is expected to vote in the afternoon following a morning debate. If the legislation clears the lower house, it will still need approval from the Bundesrat, which represents Germany’s 16 federal states. The main obstacle to passage in the upper chamber appeared to be removed on Monday when the Bavarian Free Voters pledged their support.
The three coalition parties can afford to lose around 30 votes and still push the legislation through. Conservative party insiders anticipate no more than five dissenters, while one SPD lawmaker is absent due to illness. Among the Greens, one member is expected to oppose the measure, and four others are absent for health reasons, according to parliamentary group leader Britta Hasselmann.
The conservatives and SPD are racing to pass the bill through the outgoing parliament before March 25, fearing it could face resistance from a newly strengthened far-right and far-left presence in the next Bundestag. Merz has defended the rapid timeline, citing shifting global dynamics.
If approved, the reforms would significantly roll back Germany’s strict "debt brake," a policy introduced after the 2008 financial crisis but increasingly criticized as an outdated constraint on economic flexibility.
However, Merz has faced backlash from within his own party, with critics accusing him of misleading voters by campaigning on promises of fiscal restraint only to unveil sweeping spending plans days after securing victory.
Economists warn that additional reforms—such as reducing bureaucratic red tape—are necessary for sustainable economic growth. Acknowledging these concerns, Merz signaled challenging coalition negotiations ahead.
"The problems won’t be solved by tomorrow’s vote alone," he posted on X late Monday. "We must confront the challenges ahead and deliver a coalition agreement that moves this country forward."