Germany Considers a Trillion Euros for Defence and Infrastructure

Conservatives and Social Democrats in Germany are discussing astronomical figures in their coalition negotiations. They are considering approving up to a trillion euros in extraordinary spending for just two areas: Defence and infrastructure. This expenditure, which far exceeds the federal budgets for 2025, is being considered by the winners of the recent early legislative elections in Germany, the Christian Democrats and Bavarian Social Christians (CDU/CSU), and their future Social Democrat (SPD) partners in the new executive.

This trillion, divided into two extraordinary funds, is urgently needed to rearm and modernise the Bundeswehr, the federal army, as well as to provide military and financial support to Ukraine now that the United States seems to be withdrawing its aid. It is also intended to finance investments in infrastructure in Germany, from digitalisation to railways and roads, and to promote the economic recovery, which has been in recession for two years, with aid to industry and businesses. The funds will be financed by taking on new public debt.

The CDU/CSU and SPD delegations, which have been exploring the possibility of forming a new government since last Friday, acknowledged on Monday, without giving any details, that the debate on these potential extraordinary funds is now central to the talks, also due to the shift in world politics and the crisis in transatlantic relations following US President Donald Trump's decision to abandon Ukraine to its fate. Both sides know that Germany must take on more responsibility in Europe.

While conservatives and Social Democrats refuse to discuss numbers, it has been leaked to the media that the overwhelming figure of a trillion euros comes from a report by four prestigious German economists, which has been addressed by negotiators from both parties. The analysis suggests that the extraordinary fund of 100 billion euros already approved for the federal army should be increased by 400 billion more, also to send a clear signal to Russian President Vladimir Putin.

The experts also propose approving another extraordinary fund of up to 500 billion euros for infrastructure investments. The authors of the initiative are the president of the Munich Institute for Economic Research (Ifo), Clemens Fuest, his colleague from the IfW institute in Kiel, Moritz Schularick, the director of the German Economic Institute, Michael Hüther, and Jens Südekum, professor of Economics at the University of Düsseldorf.

"We are having very constructive talks" to resolve the financing of the army's modernisation, said Friedrich Merz, conservative leader and future federal chancellor, on Monday, while Lars Klingbeil, president of the Social Democrats, expressed confidence that an agreement between the two parties is possible, as they agree on the need to strengthen the armed forces as soon as possible and ensure military and financial aid to Ukraine.

The approval of these potential funds, still without official confirmation, requires a two-thirds majority in the Bundestag, the German lower house, which must be constituted before 25 March. Conservatives and Social Democrats currently lack this support following the recent elections, even with the support of the Greens. The Left and the far-right Alternative for Germany (AfD) form a blocking majority in the new Parliament and can prevent the approval of these extraordinary budgets.

Several Berlin media outlets highlight that, for this reason, Merz wants to convene an extraordinary session of the outgoing Bundestag next week, in which the CDU/CSU, SPD, Greens, and Liberals have a sufficient two-thirds majority to approve the establishment of the two funds and provide financial relief, as well as political manoeuvring capacity, to the next federal government.