Disputes over the national debt are destroying the new coalition in Germany. What you need to know

Germany is preparing to form a coalition government. The lifting of the debt brake was a necessary step for the government of Friedrich Merz towards increasing defense spending. But the package proposed by the CDU/CSU and the SPD has caused disapproval from other parties, and the disappointment with Merz within the party is so great that his own party members may fail the March 18 vote. Why the debt brake has become a stumbling block, what is the essence of the claims of the opponents of the package and who from the party can replace Merz — in the Izvestia article.

What the coalition has proposed

• The Christian Democratic Union of Germany (CDU) and Christian Social Union in Bavaria (CSU) bloc parties and the Social Democratic Party of Germany (SPD) agreed on compromise solutions on key areas of their policies and adopted an agreement on a package of financing for defense and infrastructure.

• The agreement provides for reform of the debt brake, which will increase defense spending. The fundamental difference from special funds is that now any defense spending above 1% of GDP will not be subject to debt restrictions and will not require additional votes in the Bundestag. This should provide guarantees for the military-industrial complex and make it possible to curtail financing if the situation changes, while the special fund needs to be spent in a short time.

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• Additionally, the coalition proposes to implement a package of infrastructure projects worth €500 billion, which will be allocated under a special fund for 10 years. These funds will also be invested in defense, as well as in transport and energy infrastructure, healthcare, education, science and development. Against the background of this news, shares of German construction and engineering companies rose.

The Western press criticized the agreement, saying that it opens the way to senseless subsidies and aims to "gracefully appropriate" a significant portion of the debt for the purchase of weapons and investments in the interests of influential groups. If the reform is implemented, Berlin will transform from a model of financial discipline and an opponent of the budget deficit in the European Union into its main lobbyist. At the same time, the effect of investments in the military-industrial complex on the German economy may not be very noticeable, since the United States is often a shareholder of German defense companies.

• The adoption of amendments to the Constitution will require the support of two thirds of the votes of the Bundestag. There are fears that the far-right Alternative for Germany (AfD) and the "Leftists" may block these decisions: the AfD has already stated that the document violates Merz's election promises, and the "Leftists" were unhappy with the lack of attention to social issues. The coalition expects that the old parliament will have time to vote on the package: the constituent assembly of the new Bundestag will be held no later than March 25, and voting on the reforms in the first and second readings is scheduled for March 13 and 18.

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Meanwhile, the document is criticized by the CSU itself, claiming that it contradicts pre-election promises not to increase the national debt. The Youth Union, which will also vote on the package, was outraged by the absence of a clause on compulsory military service and said it would not support the proposal to create "a huge new debt that future generations will have to pay for without real structural reforms."

What is a debt brake?

• The debt brake is a restriction on taking out loans by the German government, which makes Germany's national debt one of the lowest in the European Union. The concept was enshrined in the constitution in 2009, when the German government was headed by Chancellor Angela Merkel. Thanks to this mechanism, Germany survived global crises, remaining the most stable economy in Europe.

• In emergency situations, the Bundestag may increase borrowing. For this purpose, a special fund is being created for specific purposes, it is not included in the main budget and can be financed by loans. For example, such a fund was created to combat the effects of the COVID-19 pandemic and to increase the defense budget by €100 billion in 2022.

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• Special funds are excluded from the debt brake only if two thirds of the votes in the Bundestag support such a decision. Loans allocated for the purpose of the special fund must be repaid in subsequent years. Loans from the Bundeswehr defense fund, formed in 2022, will need to be repaid by 2031 through deductions from the federal budget.

If the reforms do not pass the vote

• According to the firewall policy adopted by the centrist parties, the conservative CDU/CSU and the SPD cannot unite with both the far-right and the far-left. In order to outweigh the votes of the AFD and the left, the centrists need to form a coalition with the Green Party. But not everyone in the bloc agrees with this prospect. The chairman of the Bavarian CSU, Markus Zeder, strongly opposes such an alliance.

• The Greens, whose votes the coalition will need to get the law through parliament, said the agreement involves "gifts to lobbyists" without significant measures to protect the climate, and called it "poison for the country." Friedrich Merz intends to offer the Greens investments in climate projects in order to adopt the document, but the party said that they are "even further away from the agreement today than in recent days," and have put forward many demands, without which they consider the amendments "unacceptable."

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• The alliance with the Greens depends not only on the fate of the ruling coalition, but also on Friedrich Merz himself. March 25 is the first day of the meeting of the new Bundestag, at which parliamentarians will elect the German Chancellor. If the CDU/CSU party manages to form a reliable coalition, Friedrich Merz will be able to lead the parliament. But the reform agreement forced Merz to break two of his election promises at once — not to increase the national debt and not to touch the debt brake. Because of this, dissatisfaction with the leader within the CDU/CSU party is growing and at the same time the chances of another candidate, Markus Zeder, becoming the leader are growing.

What is known about Marcus Zeder

• Merz's main rival within the party remains the CSU leader, Bavarian Prime Minister Markus Zeder. He is considered a tough and ambitious politician. Zeder has repeatedly applied for the position of candidate for chancellor of Germany, but he had to step aside twice: in 2021, Armin Laschet, a protege of former Chancellor Angela Merkel, was nominated as a candidate from the CDU party, and in the last elections the CDU/CSU bloc decided to support Friedrich Merz's candidacy.

Zeder is known for his decisive actions during the pandemic, when Bavaria became the first German territory to declare quarantine, as well as harsh statements against migrants and Ukrainian refugees. In particular, he considered it unfair that more than half of the recipients of benefits in Germany are not citizens of the country, and offered to send all Ukrainians liable for military service to their homeland. He also proposed extending the operation of German nuclear power plants in 2022 due to the threat of an energy crisis in the country.

• Despite the fact that earlier the politician defended the mechanism of the debt brake, now he advocates an increase in defense spending, even if the national debt grows catastrophically because of this. Zeder believes that the European Union can no longer rely on the United States for security, and therefore it is necessary to put the economy on a military track and even diversify production into weapons production, since "weakness is not rewarded."

• It is now more profitable for Zeder to have Friedrich Merz take full responsibility for a host of problems in the German economy and social sphere. Since the Bavarian minister-president is younger than Merz, he can apply for the post of chancellor in the next electoral cycle. Political analysts believe that Zeder will act on the situation and decide which is more profitable — to be chancellor or to retain Bavaria, the presidency of the CSU party and a ministerial post in the government.

• The change of the CDU/CSU leader may be both evidence of an internal party crisis and its cause, so the Conservatives will take such a step only as a last resort. In addition, the Bavarian chancellor may turn out to be a scandalous story for German politics. The fact that Zeder takes a tough stance towards the Greens and is not ready to negotiate with them does not speak in favor of Zeder — Merz will hold upcoming negotiations on forming a coalition without his colleague.

During the preparation of the Izvestia material, we talked and took into account the opinions of:

• Artyom Sokolov, a German political scientist and senior researcher at the MGIMO Institute of International Studies of the Russian Ministry of Foreign Affairs;
• Natalia Eremina, Doctor of Political Sciences, Professor of the Department of European Studies at the Faculty of International Relations of St. Petersburg State University;
• Ivan Kuzmin, a German graduate student in the Strategic Studies program at St. Petersburg State University.