Germany's upper house clears historic defence spending bill

Germany's upper house has voted in favour of a landmark bill that plans to unlock hundreds of billions of euros for defence and infrastructure projects.

The Bundesrat supported the measure with a more than two-thirds majority on Friday, paving the way for significant reform of the country's borrowing rules.

The legislation will amend the country's constitutionally- enshrined fiscal rules allowing the government to massively boost military spending. It will also create a €500 billion special fund to finance infrastructure projects over the next twelve years.

Chancellor-in-waiting Friedrich Merz, who leads the Christian Democratic Union (CDU), wanted to get the package approved before the start of the next parliament on 25 March, fearing it could be blocked by the Left (Die Linke) and the Alternative for Germany (AfD) parties, who will have a sizeable presence in the next Bundestag.

The proposed spending boost won the support of the Bundestag on Tuesday, before making its way to the Bundesrat, its final parliamentary hurdle on the way to becoming law.

The Bundesrat, which represents Germany's 16 state governments, was not guaranteed to support the bill, as some smaller parties had voiced their objections to it.

However, it passed with 53 out of 69 votes in favour, far above the 46-ballot threshold required.

In Bavaria, there had been concerns that the Free Voters — a junior coalition partner to the conservative Christian Social Union (CSU) — would block the measure.

Free Voters leader Hubert Aiwanger voiced reservations about the package, but ultimately said his party would agree.

"Demanding the sensible use of these funds is always better than saying I failed," Aiwanger told RTL Direkt.

The states of Bremen and Mecklenburg-Western Pomerania also agreed to the measure, despite the Left party being part of governing coalitions in both regions. The Left has voiced serious objections to additional defence spending.

The historic agreement will mean billions more euros can be spent on Germany's defence sector.

Under the legislation, defence spending above 1% of Germany's gross domestic product will be effectively exempt from the country's "debt brake", which was written into the constitution in 2009.

As well as the €500-billion special fund for infrastructure projects, Germany's 16 states will be given greater leeway to borrow the equivalent of around €15 billion.

After Merz made concessions to the Greens to gain their support for the deal, €100 billion in climate investment will be included in the infrastructure fund over the next twelve years.

Merz's massive spending push is a stark reversal from the country's previous financial conservativism and a U-turn for his party, who previously opposed any reform of the "debt brake."

On Friday, Merz said of the bill: "we are laying the foundation for targeted investments in freedom and progress. We are taking responsibility for Germany."

Merz has previously justified his pivot by citing the “rapidly changing situation”, in particular, the ongoing peace negotiations between Ukraine and Russia with US involvement.