In a historic move, German lawmakers have approved a dramatic increase in defence and infrastructure spending. The decision, which was passed with a two-thirds majority in the Bundestag on Tuesday, is poised to reshape Europe’s security landscape and Germany’s fiscal policy.

This major change removes defence and security spending from Germany’s strict debt limits and creates a new €500 billion ($547 billion; £420 billion) infrastructure fund. The new policy reflects a bold shift from Germany’s traditionally cautious approach to borrowing. With Russia’s war in Ukraine still ongoing and concerns about the U.S.’s commitment to NATO, this decision has significant implications for both Germany and Europe.

However, the proposal must still be approved by the Bundesrat, Germany’s upper house, which is set to vote on Friday. A two-thirds majority will be needed there as well.

Friedrich Merz Leads Germany Into a New Era

Friedrich Merz, Germany’s incoming Chancellor and the architect of these bold plans, addressed the Bundestag during the debate. He warned lawmakers that Germany had been living under a “false sense of security” for the last decade.

“This decision marks the first significant step toward creating a new European defence community,” Merz said, emphasizing that this initiative would include not only EU nations but also non-EU countries.

Ursula von der Leyen, President of the European Commission, commended the decision, calling it “excellent news” for Europe. At a press conference with Danish Prime Minister Mette Frederiksen, von der Leyen stated, “This sends a very clear message to Europe that Germany is determined to invest heavily in its defence.” Frederiksen also praised the move, calling it “fantastic news for all Europeans.”

Historically, Germany has been hesitant about increasing defence spending, largely due to the weight of its past and the financial strain from the global debt crisis of 2009. Despite concerns that the vote would be close, lawmakers ultimately backed the changes with a strong majority—513 in favor, 207 against.

A leading German newspaper called this day “a moment of destiny for our nation,” highlighting the magnitude of the shift in policy.

Economic and Political Repercussions

The new law marks a significant change in Germany’s approach to defence spending. Under the new measure, defence spending that exceeds 1% of Germany’s GDP will no longer be subject to the country’s borrowing limits, which had previously been capped at 0.35% of GDP. This reform is expected to boost Germany’s underfunded military at a time of growing uncertainty in Europe.

The vote’s impact extends beyond defence spending. The legislation also allocates €500 billion for major infrastructure projects, such as road and bridge repairs, as well as climate initiatives—an area of focus for the Green Party.

Merz, whose CDU party won last month’s election, wasted no time in pushing for these changes. In a recent interview, Merz expressed his concerns about the potential scaling back of the United States’ commitment to European security. He pointed to recent discussions between former U.S. President Donald Trump and Russian President Vladimir Putin as evidence of a worsening geopolitical situation.

“Things have worsened in recent weeks, which is why we must act swiftly,” Merz told German public broadcaster ARD.

This decision is also a major political victory for Merz. As the incoming Chancellor, he will oversee the distribution of hundreds of billions of euros to invest in Germany’s future, a move that some have called a “fiscal bazooka.”

A Crucial Moment for Ukraine

The approved defence plan also includes provisions to allow aid to countries attacked in violation of international law to bypass the country’s debt limits. This will enable outgoing Chancellor Olaf Scholz to release €3 billion in aid to Ukraine as early as next week.

Merz’s decision also plays a crucial role in the ongoing support for Ukraine. As tensions continue to rise in the region, Germany’s investment in defence and infrastructure may prove vital in stabilizing the continent.

Political Challenges Ahead

Merz acted swiftly to push the changes through the Bundestag before the new parliamentary session begins on March 25. The timing is crucial because the upcoming session will likely make these measures more difficult to pass. The far-right AFD and far-left Linke parties, both of which performed well in the February election, have opposed Merz’s plans.

As Merz prepares to take on the role of Chancellor, he faces the challenge of finalizing a coalition agreement. However, he hopes to have a new government in place by Easter. Coalition negotiations in Germany typically take several months, making this timeline an ambitious one.