These Last Days News - March 19, 2025In the opera Das Rheingold by Richard Wagner, the Rhine Gold is a magical treasure guarded by the Rhine Maidens (Rheinmädchen). This gold can be forged into a ring that gives its holder unlimited power. By arrogating to himself the power to put Germany into debt in a way that no chancellor has done since 1945, Friedrich Merz, the likely next chancellor, will be taking on an unrivalled power: that of dominating Europe.
Germany has just announced the creation of a special "infrastructure fund" (Sondervermögen) of €500 billion ($545 billion) to be spent over a maximum of 12 years, and €40 billion in additional military spending per year, bringing the annual German defense budget up to 3%. The infrastructure fund, which will not be subject to the strict constitutional rules limiting government budget deficits and debt, is intended to meet urgent needs, overriding the budgetary constraints imposed by the "debt brake" (Schuldenbremse) enshrined in 2009 by then Chancellor Angela Merkel in the constitution.
The main reason given is the need to rearm Germany in the face of Russia's war economy and its 1.2 million mobilized soldiers. In concrete terms, German public debt will rise from 60% of GDP to at least 80%.
Military
Faced with a potential US disengagement from Europe -- which remains to be seen -- and growing geopolitical tensions (notably with Russia and the war in Ukraine), Merz is insisting on the need for Germany and Europe to strengthen their defense capabilities. He has declared that a "whatever it takes" approach must be applied to defense, and underlined the urgent need to act before the new Bundestag (lower house of parliament) is constituted on March 25, 2025.
Amending the constitution requires a two-thirds majority in the Bundestag. However, when the new Bundestag resulting from the February elections is convened, the CDU/SPD/Green coalition will no longer have a two-thirds majority. For this reason, a constitutional amendment was passed by the Bundestag on March 18 in a move that was legal but hardly democratic, by using a lame-duck parliamentary majority to rush the decision before the newly elected majority is assembled. The amendment now awaits passage by the Bundesrat (upper house of parliament)
Merz's CDU/SPD/Green coalition agreement provides for defense spending in excess of 1% of GDP to be exempt from the debt brake, thereby freeing up around €40 billion a year. Germany could thus reach 3% of GDP in military spending every year, in line with NATO's ambitions -- and the (completely justified) reminders from the US President Donald Trump.
This spending will finance the modernization of the German military -- and related areas such as civil protection, the intelligence services and aid to Ukraine. German's Bundeswehr could once again become Europe's leading army.
Infrastructure
The constitutional amendment passed on March 18 by the Bundestag includes the following article:
"The Federal Government may establish a special fund with its own borrowing authority for additional investments in infrastructure and for additional investments to achieve climate neutrality by 2045, with a volume of up to €500 billion. Additionality is deemed to exist if an appropriate investment quota is achieved in the federal budget in the respective fiscal year. Article 109, paragraph 3, and Article 115, paragraph 2, do not apply to the borrowing authority. Investments from the special fund can be approved within a term of twelve years. Transfers from the special fund to the Climate and Transformation Fund will be made in the amount of €100 billion. Further details are regulated by federal law."
The most important word in this amendment is the fourth, "may": the government gives itself the option of spending €500 billion, but it is not an obligation. The scope of this amendment is therefore to derogate from the rule on indebtedness, not to oblige the government to make any expenditure (which is important for the "Climate and Transformation Fund" part of these expenditures, more on that below).
Germany has unfortunately been suffering from chronic under-investment in its infrastructure (roads, bridges, railways, schools, communications networks), exacerbated by years of other budgetary preferences under Angela Merkel and Olaf Scholz. Merz apparently sees these investments as a lever for reviving an economy that has been in recession for two years -- and he is probably right.
The special fund for infrastructure is endowed with €500 billion over 12 years (initially planned for 10 years, extended to satisfy the Greens). These funds will finance specific projects such as the upgrading and modernization of rail networks, school buildings and communications networks.
This expenditure will be strictly "additional" and will not be able to finance current expenditures.
The Green Amendment
To obtain the support of the environmentalist Green Party -- essential for a two-thirds majority in the Bundestag -- Merz had to include an environmental dimension in the fund. €100 billion -- 20% of the fund -- is dedicated to climate measures: the "energy transition," environmental protection and decarbonization projects. Initially set at €50 billion, this sum was doubled after negotiations with the Greens. That concession made it possible to win them over.
Voices were immediately raised denouncing the inclusion of climate change in the constitution. These are legitimate concerns.
Germans generally take the law seriously, and the amendment to the constitution states that €100 billion will be devoted to climate objectives. This is certainly not a state objective or obligation. In fact, the German constitution defines state objectives: human dignity, democracy, the welfare state (Sozialstaat), rule of law (Rechtsstaat), as well as environmental protection. From this point of view, the amendment changes nothing, and focuses exclusively on that €100 billion to be spent on "climate and transformation."
What is certain, however, is that the Merz program in no way calls into question the environmentalist ideology that has dominated German politics for the past 15 years. Yet this transition is precisely what has led to the ongoing destruction of German industry, with no measurable effect on the climate. Despite the hundreds of billions already spent by Germany on its energy transition, Germany still emits ten times more CO2 per unit of energy produced than nuclear-powered France.
Above all, the imperatives of the arms industry -- think of Rheinmetall, whose share price has risen by 180% in the last six months -- are radically irreconcilable with going "carbon-neutral." Germany cannot destroy its industry and rebuild it at the same time.
By giving himself the right to spend an extra €500 billion over 12 years on infrastructure and climate change, and additional to that, spend "whatever it takes" for the German military -- €40 billion more per year being the best available estimate -- Merz is assuming considerable power, the likes of which no German chancellor has had since 1945.
As the allocation of these resources is formulated in broad and vague terms, the chancellor will have immense power in the allocation of funds. In addition, the German military will be financed to the tune of €120 billion per year, giving it the potential to become the strongest force in Europe -- France spends roughly €55 billion a year. Here again, the power of Germany and its chancellor is growing considerably.
It certainly seems as if Das Rheingold is emerging from the deep.
