German Bundestag passes law to relax debt brake

Update: As of March 21, the upper house of the German parliament (Bundesrat) has now also passed Friedrich's Merz's finance plan.

Members of the German parliament’s lower house (Bundestag) have approved Friedrich Merz's 500-billion-euro spending plan. The country must now loosen its borrowing restrictions. Why is the vote so significant, and what happens next?

Bundestag approves Merz’s €500bn spending plan

Members of the Bundestag have passed Friedrich Merz’s multi-billion-euro finance plan. 720 of the Bundestag’s current 733 members voted, 513 voted to pass the bill, 207 voted against it, and none abstained. The vote was tight, with Chancellor-in-waiting Merz (CDU) needing at least 489 votes in favour to pass his plan.

Merz's plan was first outlined in early March. After winning the federal election on February 23, the CDU/CSU has been making moves to form a coalition with the SPD. The two parties have published an 11-page “exploratory paper” outlining what their coalition would do while in government, alongside Merz's finance plan. But the coalition is yet to take office.

Why was today’s Bundestag vote significant?

The finance plan covers many areas, from increasing the minimum wage to purchase incentives for buying electric cars and reducing VAT on restaurant and cafe purchases from 19 percent to 7 percent. But most significantly, the plan allows unlimited defence spending. This requires the government to relax the country's debt brake (Schuldenbremse).

The Schuldenbremse was introduced shortly after the 2008 financial crisis and rules that Germany’s annual debt cannot be more than 0,35 percent of its annual GDP. When it was adopted, the Schuldenbremse was written into the German constitution (Grundgesetz).

However, the Schuldenbremse has become more of a burden than a help in recent years, as Germany manages multiple crises such as coronavirus and Russia’s full-scale invasion of Ukraine. Merz argues that German defence spending must be exempt from the debt brake laws so that the country can increase security in uncertain times.

Making these changes is no cakewalk. This is because the Bundestag needs a two-thirds majority to change any law enshrined in the constitution. The new parliament is due to convene on March 25, but Merz was eager to push his finance plan through beforehand, believing that it could only pass in the outgoing parliament.

In the outgoing parliament, the CDU/CSU, SPD and the Greens hold the two-thirds majority Merz needed to get his plan through, but the leader first had to spend last week talking the Greens round, to ensure he could count on their vote. The left-leaning, environmentalist party played hardball, and as a result, a reformed version of Merz’s financial plan now includes a 100-billion-euro investment in climate policies. 

"[The Greens] managed to achieve more over the past week as they faced their last days in government [...] than in the last three-and-a-half years when they were in charge,” Deutsche Welle’s political editor Michaela Küfner suggested.

Merz’s hurry to push through a change to the constitution has also been met with criticism. Speaking in the pre-vote Bundestag debate on Tuesday, Johannes Vogel (FDP) called the move a “dramatic reckless gamble”.

Britta Haßelmann (Greens) also accused the CDU of opportunism, having u-turned on financial promises made in their manifesto. "In October 2024 [...] [e]veryone knew that this country urgently needed investment. The Greens and the SPD had campaigned together for this," Haßelmann said, claiming that the centre-right party had instead denied investment was necessary and defamed the coalition.

Merz’s plan must now pass Bundesrat vote

Following the Bundestag vote, Merz’s financial plan faces further hurdles before it can be officially adopted. On Friday (March 21), members of the German parliament's upper house (Bundesrat), which represents governments of the 16 federal states, will vote on the plan. Only with their approval can it go ahead.

The plan needs at least 46 of 69 votes to pass in the Bundesrat, but state governments run exclusively by the CDU, SPD, or Greens only have 41 votes to cast, meaning five votes in favour of the plan must come from representatives of other parties. 

All eyes will be on Bavaria on Friday. If Bundesrat representatives from the CSU and Free Voters parties in the southern federal state stick to their word, they will use their six votes to pass the financial plan.

Even with this success, yet another hurdle remains in the near future. Once Germany’s incoming parliament convenes on March 25, 2025, Merz’s plans could be halted by a “blocking minority” if the far-right AfD and far-left die Linke vote to block the change.