Germany's old parliament votes to borrow. Merz's new government inherits the bill.

Germany changed its fiscal constitution before the parliament elected to govern under it had taken its first vote.

On 18 March, the outgoing Bundestag approved a package loosening the federal debt brake, creating a €500 billion infrastructure and climate fund and giving defence and security spending a wider route around the borrowing limit. The Bundesrat approved the changes three days later.

Friedrich Merz, the conservative winner of February's election, negotiated the package with the Social Democrats and secured the Greens' support for the constitutional majority. He was still the chancellor-in-waiting. Olaf Scholz remained in office. The new Bundestag was due to meet on 25 March.

The unusual timing was the result of arithmetic. The old chamber could pass the amendment with the votes available to the outgoing parties; the new chamber, reduced to 630 seats and containing a much larger AfD and Left party presence, could not easily supply the same two-thirds majority. Merz argued that Europe’s security situation and Germany’s economic weakness required action before the transition.

Opponents argued that the voters who had just elected a new parliament should decide the rules for the next government. Constitutional complaints and urgent applications challenged the procedure, but the court did not stop the sitting.

The result is more than a large spending plan. It is a bargain among parties that were campaigning against one another, a commitment future governments will have to implement and a precedent for using a departing parliament to bind its successor. The money will be released over years. The argument about legitimacy will last at least as long.

The package passed in a race against the calendar

The constitutional amendment required two-thirds support. The Union and SPD did not possess that margin alone in the outgoing chamber, so Merz's negotiators needed the Greens. The Greens demanded that climate investment be protected and that the language of the package prevent the infrastructure fund from becoming a general-purpose account.

The final vote on 18 March was reported as 512 votes in favour and 206 against in the Bundestag account. The amendment changed Articles 109, 115 and 143h of the Basic Law. It created a special fund of €500 billion for additional infrastructure investment and climate-neutrality measures through 2045.

A separate rule exempts defence expenditure above one percent of nominal GDP from the debt-brake calculation. The exemption extends to intelligence, civil protection, cyber security and assistance to Ukraine. The package also gives Länder more room for borrowing under defined conditions.

The existing debt brake normally limits the federal government's structural net borrowing to 0.35 percent of GDP. It was written into the constitution after the financial crisis and became a central argument in the collapse of Scholz's coalition in November 2024.

The parties did not agree on what the rule had done to Germany. Supporters described it as an obstacle to repairing railways, bridges, energy grids and military capacity. Critics said the government had used accounting devices instead of setting priorities and that borrowing would simply move pressure into the future.

Their compromise keeps a rule and creates broad exceptions. It does not abolish fiscal discipline; it changes where the discipline is applied and who decides whether spending qualifies.

The fund's word “additional” is important. Money placed outside the ordinary budget is meant to add to planned investment, not replace it. The Federal Ministry of Finance's explanation of the debt rule warns that special funds remain subject to constitutional requirements. Whether spending is genuinely additional will be tested in annual budgets and eventually by auditors and courts.

The €500 billion headline also hides a timetable. The fund is authorised for a twelve-year period, so the amount is a ceiling and financing framework rather than a cheque that can be spent in one year. Ministries and Länder will still have to submit projects, meet procurement rules and show that investment is not ordinary maintenance relabelled for access to borrowed money.

The defence exception has a similar qualification. Spending above one percent of GDP is treated differently, but the armed forces still need contracts, trained personnel and industrial capacity. A constitutional permission to borrow cannot produce ammunition or air-defence systems without administrative decisions.

The Bundesbank had argued earlier in March for a debt framework that would be predictable and supportive of investment. Its intervention captured the tension in the debate: public finances must remain credible, but a rule that prevents necessary investment can weaken the economy it is meant to protect.

An outgoing majority, an incoming government

The procedure became part of the substance.

The 23 February election produced a Union victory, a historic AfD result and a parliament in which the parties expected to govern no longer had the same room for manoeuvre. The old Bundestag had been elected under different numbers and before the constitutional amendment was negotiated. Merz and the SPD argued that waiting would leave Germany unable to respond to the security and investment demands they said voters had endorsed.

The Greens accepted the package only after negotiating changes. Their votes were not an endorsement of a future Union-SPD government. They were leverage for climate funding and a way to shape a financial framework that could otherwise have been agreed without them.

The AfD and the Left opposed the amendment for different reasons. The AfD rejected new borrowing and challenged the legitimacy of the outgoing chamber. The Left criticised the package as a route to higher military spending and argued that debt should be used for social and ecological priorities instead.

The Federal Constitutional Court received urgent applications seeking to prevent the vote. On 17 March it announced that the applications had failed to meet the conditions for an interim order. That did not decide every constitutional question about the amendment's content. It allowed parliament to proceed while ordinary legal challenges remained possible.

This distinction matters when evaluating the vote. A court's refusal to suspend a procedure is not a finding that every political criticism is unfounded. It is a decision that the threshold for stopping a constitutional process before the merits are fully examined has not been met.

The Bundesrat's vote on 21 March brought the required second chamber majority. State governments had their own reasons to support or resist the changes. The Länder will benefit from infrastructure funding and additional borrowing room, but they will also be responsible for projects and co-financing choices. The federal promise cannot remove those implementation obligations.

President Frank-Walter Steinmeier signed the amendment on 22 March, and it entered into force on 25 March. The same day, the newly elected Bundestag convened. The sequence meant that the new chamber began its work under rules passed by its predecessor.

Merz had obtained his fiscal opening before he had obtained the chancellorship. That gave him negotiating power in coalition talks with the SPD, but it also created an immediate political risk. The Union had campaigned for a careful approach to debt and could now be accused of changing the constitution before taking office.

The SPD gained commitments on investment and social protection but had to explain why it was enabling a conservative-led security spending plan. The Greens could point to the €100 billion climate allocation, while acknowledging that the overall package made defence the largest new claim on fiscal space.

The question for each party is whether the March bargain can be presented as a response to circumstances rather than a manoeuvre around an electoral result. The answer will depend partly on outcomes voters cannot yet see: whether rail projects are completed, whether defence procurement accelerates and whether the additional investment actually appears in public accounts.

Europe hears a new German promise

The amendment was negotiated in a European moment defined by uncertainty over American security commitments and the war in Ukraine.

Germany is Europe's largest economy and its largest potential source of additional defence spending. Merz had argued during the election campaign that Berlin needed to take more responsibility for the continent's security. The constitutional changes give a future government the financial capacity to make that case credible, but they do not decide which weapons Germany will buy or how it will work with France, Poland and other partners.

The exemption covers assistance to Ukraine as well as domestic defence. That is a signal to Kyiv and to allies that the new coalition will have room to continue support. It is not an automatic multi-year commitment. Each tranche will still pass through budgets and political decisions.

The infrastructure fund carries a different European message. Germany's weak growth has been tied to industrial uncertainty, energy costs and deteriorating transport networks. Investment in grids, rail and digital systems can support the single market, but only if projects are designed and delivered rather than announced.

Brussels will assess Germany's borrowing within the EU fiscal framework. A constitutional exception does not exempt Berlin from European surveillance or from the need to show that debt is sustainable. The government must report spending and debt trajectories under the reformed economic governance rules.

The March package therefore creates both capacity and exposure. If the funds produce visible investment and a stronger defence contribution, Merz can say Germany has moved from promises to responsibility. If borrowing rises without productivity or security gains, opponents will say the constitution was changed to postpone difficult choices.

The new rules also create a distributional argument. Infrastructure spending can be concentrated in large projects and wealthier regions unless the Länder receive predictable allocations. Defence contracts can benefit particular industrial centres while households face pressure from higher interest costs or future tax decisions. The word “additional” does not answer who receives the economic benefit.

Implementation will become a test of federal competence. The government must publish criteria, prevent ordinary spending from being shifted into the special fund and give parliament enough information to scrutinise multi-year commitments. The Bundestag's budget committee and the Federal Audit Office will have to follow money that is deliberately placed outside the normal annual budget rhythm.

That administrative work is less dramatic than the vote, but it is where legitimacy will be earned. A constitutional amendment can be valid and still fail as policy if projects are late, costs overrun or funds are used for politically convenient substitutions.

By the end of March, Germany had a new borrowing capacity and no new chancellor. Coalition talks between the Union and SPD continued. Merz could enter those talks with a fiscal tool that Scholz's government had lacked. He also carried responsibility for a decision that would shape the next decade.

The outgoing parliament has finished its extraordinary task. The incoming one now has to show that the money can be translated into roads, energy networks, resilient institutions and credible security. In Germany, the brake has been loosened. Direction and speed remain political choices. The first deadlines will come before the fund has a public legacy. Ministries must decide which projects qualify, states must agree how to deliver them and parliament must decide how closely to inspect the accounts. A bridge announced in Berlin is not a bridge opened in a town. A defence exemption is not a capability until contracts are signed and equipment reaches units. The coalition will also have to explain how debt service fits beside pensions, tax relief and the routine costs of government. Those choices are precisely what the debt brake had forced into the open. By moving them into exceptions, the amendment gives politicians room to act and gives them more room to be blamed. The legal text is therefore only the beginning of the fiscal story. Voters, auditors and European partners will measure the amendment by delivery, not by the size of its headline. That scrutiny begins with the first project and the first invoice, long after the constitutional ceremony has disappeared from the news. The same is true of the debt service it creates. Germany has gained capacity; it has not gained an escape from trade-offs. That is the political test Merz will face when the first borrowing decisions arrive: can he show that the exceptional moment was used to build a more resilient country, rather than to postpone the ordinary work of setting priorities?