Germany’s incoming coalition government between Christian and Social Democrats (CDU/CSU and SPD) abolished the upper debt limit for all military expenditures that exceed 1 percent of gross domestic product (GDP), after gaining a majority in the outgoing Bundestag. Additionally, the new government aims to put together a 500-billion-euro infrastructure-investment package, raise the debt limit for federal states from zero to 0.35 percent of GDP, and work out an even broader debt-brake reform by the end of the year. The Greens initially announced that they would not support the constitutional amendments in this form, but soon caved. Either way, in the short to medium term, a new chapter in German fiscal policy is about to begin.
Samuel Decker is an economist and a research assistant at Netzwerk Plurale Ökonomik, a network for pluralist economics.
A Departure from the “Black Zero”
The plans are undoubtedly of historic significance, as no other country adheres so rigidly to strict fiscal conservatism as Germany. After the hyperinflation of the 1920s and the subsequent economic crises in the early years of the Federal Republic, a conservative and, to some extent, ordoliberal mindset took hold, which prioritized strict budget discipline.
The first post-war recession of 1966–67 temporarily led to a more expansionary monetary and fiscal policy, with increased public investment aimed at stimulating economic growth. Helmut Schmidt (SPD) then put an end to this Keynesian interlude in the 1970s. Austerity policies and a fear of excessive public spending have dominated under successive governments. In the wake of the financial crisis, costly bank bailout policies amounting to hundreds of billions of euros, and the resulting increase in the national debt, this ultimately led to the introduction of the debt brake into the German Basic Law in 2009.
In recent years, fiscal conservatism in Germany has seemed impossible to overcome. This is in part due to the fetishization of the so-called schwarze Null (“black zero”), the government’s rigidly balanced budget, under Finance Minister Wolfgang Schäuble (CDU). The Free Democratic Party’s (FDP) obsession with the debt brake — culminating in the appointment of FDP ordoliberal hardliner Lars Feld as the Finance Ministry’s chief advisor — also contributed.
This political continuity now appears to have been disrupted. True, the debt brake had already been temporarily suspended due to the COVID-19 pandemic and the war in Ukraine. Even before the Sondervermögen Bundeswehr, a “special fund” allocated to the military, was approved in 2022, numerous off-budget funds and shadow budgets had emerged to circumvent the debt brake. However, the Federal Constitutional Court banned these practices in a November 2023 ruling, which laid the groundwork for the collapse of the outgoing coalition (SPD, FDP, and Greens) and ultimately triggered the current debate on reforming the debt brake. There is no longer any discussion of emergency measures, but rather of a permanently changed situation. Indeed, incurring hundreds of billions of euro in debt annually would represent a fundamental shift.
Unprecedented Rearmament
From a left-wing perspective, the fiscal policy U-turn is, on the one hand, a welcome development — especially if it leads to a more extensive reform of the debt brake in the medium term — as progressive policies are hardly possible under the constraints of the debt brake. On the other hand, this reform is part of an unprecedented drive for rearmament and an overall authoritarian shift that further sidelines social and environmental policies.
It is true that exempting spending of more than 1 percent of GDP on defence from limits on government borrowing would ease budgetary conflicts with other policy areas. But ultimately, this is not primarily about money. As we now see, there is enough of it. The (alleged) monetary scarcity is less important than real economic limits: resources, labour, and our planet's ecological capacity are finite. As Lukas Scholle outlined in Surplus magazine, the proposed large-scale spending on defence ties up real resources: “A limited number of engineers are using a limited amount of steel to build tanks instead of trains. As a result, not only can we produce fewer trains, but they also become more expensive because engineers and steel are in shorter supply.”
Given the extensive rearmament plans, which are effectively going unchallenged by both the far-right AfD and the Greens, critically scrutinizing budgetary proposals and proposing alternatives are key tasks for the social and political Left.
We are only at the beginning of a new era of rearmament, which is set to consume essential resources needed for an urgently necessary socio-ecological transformation and for the fight against the climate crisis. Also in Surplus, Adam Tooze raised the following question: “Is Russia really a greater threat to the security and well-being of the people in Germany than the global climate crisis or the fact that a disturbingly large number of children in the country are living in poverty?” The focus is shifting from whether money is spent to what it is spent on and who benefits from it. Although the Left is winning the battle over the “whether”, it is possible that we are currently losing the battle over the “what” and the “who”.
The reluctance of the Greens to support the planned constitutional reforms when it comes to rearmament should not be misinterpreted. During the election campaign, Robert Habeck called for an increase in the country’s defence spending to 3.5 percent of GDP. This would amount to over 100 billion euro per year. The amendments suggested by state-level Green ministers suggest that the shift would be an “improvement for the worse” – for instance, if the portion of defence spending in excess of 1.5 percent of GDP is only excluded from the debt brake in order to maintain fiscal pressure on the federal budget. The proposals show state-level Green ministers effectively accommodating Friedrich Merz’s initial negotiating position.
Defensive Capability, Not War Readiness
Given the extensive rearmament plans, which are effectively going unchallenged by both the far-right AfD and the Greens, critically scrutinizing budgetary proposals and proposing alternatives are key tasks for the social and political Left. A common argument on the Left is that European defence spending already exceeds that of Russia — but there are studies that contradict this. Using exclusively numerical terms to argue that further militarization of Europe against Russia is unnecessary is a dubious proposition. Stronger arguments are needed.
It may be wise to avoid these debates, as they assume a Russian frontal attack on Europe — a scenario that only strengthens military hardliners. Even if, years after a ceasefire, Russia were to launch a new offensive against Ukraine or even NATO members Lithuania, Latvia, or Estonia, it would likely remain a contained military conflict rather than escalate into an all-out confrontation involving the complete military arsenals of the EU and Russia. Greater European cooperation would be enough to counter Russia’s imperial ambitions. This perspective, grounded in real scenarios rather than an abstract narrative of threat, remains marginalized in public discourse and would need to be substantiated with facts and studies.
In addition to greater European cooperation, Die Linke is justifiably calling for the nationalization of the arms industry. Eliminating private profits in the defence sector could help reduce costs. It remains unclear, however, how this would be implemented and how nationalization would differ from the state investments recently proposed by Defence Minister Boris Pistorius (SPD).
In March 2025, the Federation of German Security and Defence Industries called for utilizing the “availability of resources in Germany’s automotive and automotive supplier sector” to “rapidly expand arms production, particularly in large-scale manufacturing”. The automotive and supplier industries are in fact already transforming. Since both this transformation and nationalization could also be regarded as instruments of progressive economic policy, a well-founded left-wing critique is especially important.
“Defensive capability, not war readiness” is set to be the central point of contention in upcoming discussions. Friedrich Merz and European heads of state may oppose Russia’s war of aggression and the authoritarian behaviour of Donald Trump, thus upholding seemingly liberal values, but an unlimited arms race serves no one. A policy of diplomacy and disarmament seems almost unimaginable today, even in centre-left circles. To challenge the widespread belief that only rearmament and military deterrence can resolve or prevent conflicts, concrete proposals for a policy of international balance of interests are needed. On a fundamental level, we have to find alternatives to authoritarian crisis management and advance a narrative of global cooperation, rather than militarized competition.
No Economic Restructuring
The incoming coalition’s exploratory paper not only envisions virtually unlimited rearmament, but also proposes a 500-billion-euro package for infrastructure. This investment covers “civil protection systems; transport infrastructure; hospitals; energy infrastructure; education, childcare, and science infrastructures; research and development; and digitalisation". As yet, it is unclear how the law implementing the proposed "special fund" will be structured and how spending will be prioritized. It is not hard to imagine that, under a government led by Friedrich Merz, "infrastructure investments" will primarily benefit businesses rather than the majority of the population. Corporations could profit directly from public contracts and indirectly from improved infrastructure, which would, for instance, reduce logistics costs. The Greens’ call for greater climate protection is justified, but their envisioned ecological subsidy policies — which Robert Habeck has also advocated in his capacity as Minister for Economic Affairs — lack ambition and align too closely with business interests.
Not even a more extensive reform of the debt brake will change the fact that the new government is pushing an authoritarian political shift in which social and environmental goals take a back seat to military war readiness and economic profitability.
The significant crisis in the automotive industry highlights the fact that production capacities and jobs can only be preserved and transformed in an ecologically sustainable way through a major restructuring, which includes reshaping certain industrial sectors. Yet Germany's political mainstream, Greens included, is far removed from any such transformative industrial policy. It falls to the left to use the newly legitimized debt-financing approach — together with workers, trade unions, and civil society networks — to push for a progressive economic policy. The medium-term goal must be an even more ambitious investment programme aimed at a radical socio-ecological transformation of the economy, which could also serve as an alternative to a military-focused overhaul of fiscal policy.
Cuts Remain Inevitable
The agreement between the CDU and SPD clearly prioritizes higher military spending above all else. To enable this, the debt brake enshrined in the constitution is to be amended. Funding “infrastructure” — although it remains unclear what exactly this means and who will ultimately benefit from it — is a secondary concern. Social spending ranks last and will continue to be subject to the restrictions of the constitutional debt brake. To that effect, Bürgergeld (citizens’ income) is set to be abolished in its current form, while corporate taxes are to be reduced. Other employer-friendly policy proposals and cuts to social benefits are also likely to be included in the coalition agreement.
Not even a more extensive reform of the debt brake will change the fact that the new government is pushing an authoritarian political shift in which social and environmental goals take a back seat to military war readiness and economic profitability. While billions of euro are invested in the military, recipients of citizens’ income could see cuts to essential financial support. A central undertaking for the societal Left in the coming months and years will be to mobilize resistance against proposed cuts and handouts to corporate executives.
Can We Expect a Comprehensive Reform of the Debt Brake?
If the CDU and SPD fail in their attempt to amend the constitution, the question of reforming the debt brake will come up again nonetheless. Such a reform would only be possible with votes from Die Linke. During their exploratory talks, the CDU and SPD have agreed to establish an expert commission tasked with drafting a proposal to "modernize" the debt brake. The exploratory paper states that, “on this basis, we aim to complete the legislative process by the end of 2025”.
However, setting up an “expert commission” reeks of a stalling tactic. The failure thus far to implement the referendum mandate on the appropriation of large housing corporations underscores just how slowly the wheels of parliamentary democracy can turn. It is entirely possible that the CDU and SPD intend to use a one-sidedly staffed expert commission to develop a conservative reform proposal that will put pressure on Die Linke: if the reform initiative were to collapse, Die Linke could be blamed for failing to fulfil its staatspolitische Verantwortung — its supposed policymaking responsibilities.
It is a good thing that Die Linke is making the comprehensive debt-brake reform a central issue, tying it to a critique of unilateral rearmament and social spending cuts. The reform of the debt brake, and even the composition of the expert commission itself, will play an important role in the political struggles ahead.
Merz Is Not to Be Trusted
The charge that the undemocratic rush to push the most far-reaching amendment to the Basic Law in recent years through the outgoing Bundestag is unconstitutional is absolutely justified.
Friedrich Merz brazenly lied to voters, as Ricarda Lang pointed out in an interview. During the election campaign, he downplayed the need for a reform of the debt brake with flimsy arguments — for instance, by referring to a “cash audit” that would uncover the missing funds. On the one hand, Merz was attempting to keep the FDP, the party that most adamantly insists on maintaining the debt brake, below the five percent electoral threshold for participation in the Bundestag. On the other, he intended to prevent Olaf Scholz’s narrative that, although money is scarce, social spending and defence should not be pitted against each other, from gaining traction.
Instead of funnelling billions into rearmament, the focus must shift to climate justice, social security, and public services.
Merz undermined this argument by simply denying the existence of a real financial shortfall. The 28 February 2025 meeting in which Donald Trump and his Vice President J.D. Vance predictably clashed with Ukrainian President Volodymyr Zelenskyy is unlikely to have prompted a genuine change of heart in Friedrich Merz. On the contrary, much like in the case of the knife attack in Aschaffenburg, he is exploiting the event to shape new political realities.
So What Now?
- Reject rearmament. The proposed massive military expenditures, which are going unopposed even by the Greens, would tie up real resources needed to restructure the economy, ensure long-term job security, and combat the climate crisis. The billions of euro allocated for rearmament are unnecessary from a security policy perspective. What is needed instead is greater European cooperation and the nationalization of the arms industry.
- Steer investments strategically. The planned 500 billion allocated for infrastructure must be tied to ecological and social criteria and used wisely. Larger-scale investments for a socio-ecological transformation of the economy must go beyond the prevailing approach of ecological subsidy policies pushed by the Greens.
- Stop cuts and tax reductions. Despite increased borrowing, the impending coalition agreement threatens tax cuts for businesses and cuts to social benefits. Resistance must be organized to push back against this and to expose the legitimation crisis surrounding austerity policies.
- Demand a comprehensive reform of the debt brake. Rushing a constitutional amendment through an outgoing Bundestag is undemocratic. The proposed expert commission must not become a delaying tactic. The debt brake must be abolished for all investments.
- Shift the public debate. The question is no longer “Are we allowed to take on debt?” but rather “Who benefits from it?” Instead of funnelling billions into rearmament, the focus must shift to climate justice, social security, and public services.
Translated by Charlie Wührer and Joseph Keady for Gegensatz Translation Collective.
