The center-right bloc consisting of the Christian Democratic Union (CDU) and Christian Social Union (CSU), and the center-left Social Democratic Party (SPD) are in negotiations to form a governing coalition. The parties are addressing the substantial financial shortfall in the state budget, which was initially identified as a significant point of contention. They determined that at least €130 billion ($139 billion) is missing from the state coffers over the next four years.

In addition to this shortfall, German economists estimate that around €400 billion will be required to further arm the military, and up to €500 billion is needed to overhaul Germany’s aging infrastructure, which includes roads, bridges, and railroads. In response to these figures, the coalition partners are considering exempting defense spending over 1% of gross domestic product from the restrictions of the debt brake, a constitutional mechanism that severely limits the state’s ability to borrow.

The negotiations also involve setting up a new special fund of €500 billion over 10 years to address infrastructure spending. An amendment to the debt brake is proposed to allow federal states to take out debt equivalent to 0.35% of their economic output. These discussions will likely lead to amendments to the Basic Law and will require a two-thirds majority in the Bundestag for approval. This due to the reduced representation of the parties in the new parliament.

The potential coalition agreement includes provisions for special funds, known as “Sondervermögen,” which are not subject to the usual parliamentary approval process. These funds, set up as special debt pools, bypass the debt brake and have been criticized for their lack of asset backing.

The historical context of special funds includes the setup of credit lines for rearming the military and supporting the economy during crises, dating back to post-World War II reconstructions. However, these funds have come under scrutiny for their lack of transparency and potential to increase the national debt burden.

Considering the implications of additional borrowing for the national debt and future interest payments, there is concern that this may lead to a heavier financial burden and limit the government’s fiscal flexibility.

Source: https://www.dw.com/en/germany-set-to-spend-big-on-army-and-infrastructure/a-71834527?maca=en-rss-en-all-1573-rdf