Germany’s election victor must ditch its debt rules—immediately

FRIEDRICH MERZ, who is likely to become Germany’s next chancellor, used his victory in elections on February 23rd to issue a remarkable warning to his compatriots. This was not about the need to revive his country’s ailing economy, nor to respond to the alarmingly strong performance of the hard-right Alternative for Germany (AfD). It was a blistering indictment of Germany’s chief ally and its president, Donald Trump.  “It is clear that the Americans, at least…this administration”, he said, are “largely indifferent to the fate of Europe.” He declared it his “absolute priority” to help Europe achieve “independence from the USA”.

These are astonishing words from an incoming German chancellor, the leader of the Christian Democrats (CDU) and a lifelong Atlanticist. Unfortunately Mr Merz is right: Europe does indeed have to contemplate being able to defend itself without America fighting by its side. But saying so is easier than doing something about it.

Germany—like the rest of Europe—needs to spend money on defence, and a huge amount. But its public spending is held back by a “debt brake” that prohibits the government from running a structural deficit of more than a minuscule 0.35% of GDP. And therein lies the problem. Following the vote, parties that might want to alter or eliminate the rule will lack the strength to do so.

The two parties that have ruled Germany either in turns or in tandem since the second world war had a bad election. True, the CDU, together with its Bavarian ally, came top, meaning that Mr Merz will become chancellor unless coalition talks fail. However, they scored their second-worst result ever and the Social Democrats, who led the outgoing government, had their worst. But together they are the only feasible two-party coalition that could command a majority, and they will soon start formal coalition talks.

Relaxing or scrapping the debt brake needs a two-thirds majority in parliament. The mainstream parties had that before the election—and plenty of people, including this newspaper, urged them to act while they still could. When the new Bundestag convenes, that two-thirds majority will be gone, owing to the gains made by two radical parties, the AfD and the former communist Die Linke (“The Left”). The AfD will never vote to relax the debt brake. Die Linke wants to scrap it in principle, but says it will “never vote for rearmament”.

A constitutional quirk offers a way out, but only if Germany moves fast. The new parliament will not convene until March 25th, and in the meantime the old lame-duck one can still act. Mr Merz’s ranks, the SPD and the Greens should push forward an urgent reform to the debt brake while they still can.

Ideally, they would scrap it altogether, as Germany’s debt allergy has starved not just defence but roads, railways, digital infrastructure, hospitals and much else. If eliminating it is too hard, then at the least an exemption must be made for defence spending—including for Ukraine.

Mr Merz, unfortunately, appears to have ruled this out as too difficult. He proposes instead another “special fund” of perhaps €200bn ($210bn) to top up defence spending; a workaround used by his predecessor, Olaf Scholz. This also needs a two-thirds majority, as it is, technically, a constitutional change. It might be easier to swallow, but it is not nearly enough. If Germany is to boost defence spending at least to the 4% level we think is needed and keep it there, the special fund, like its predecessor, will run out in a few years. Disappointingly, Mr Merz is ducking his first big challenge. ■

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