Special meeting in the Bundestag: What you need to know about the financial package

It should be the basis for a new black-red coalition: a multimilliard financial package for defense and infrastructure. But the Union and the SPD threatens to fail with their first joint project – because they need green or FDP and they have not yet been available for approval. What you need to know about the plans and the criticism of it.

Union and SPD want to change the Basic Law in several places and regulate three things: defense spending should only fall under the debt brake up to a percentage of one percent of gross domestic product (GDP) – around 44 billion euros. Everything that goes beyond that should be financed as desired from loans. In addition, the countries should get more scope for their own debt: Together they should be able to take out loans of 0.35 percent of GDP in the future. Third project is a special fund for investments in infrastructure, which is to be excluded from the debt brake and is to be fed with 500 billion euros from loans.

It would be a huge financial injection for two areas in which experts see a great need for investment. According to Defense Minister Boris Pistorius, Germany will need 85 to 90 billion euros annually for the two percent goal of NATO alone. The Bundeswehr should be made so fit that it can deter the attacker and pass a fight. In addition, Germany wants to continue to support the Ukraine attacked by Russia.

There is also a huge investment backlog with highways, bridges, rails, in energy networks, at daycare centers, schools and universities. Germany could bring a large modernization boost to 500 billion euros in ten years. And you could make sure that the federal government does not have to decide between money for infrastructure and money, for example for social security or other important things. You could afford both. However, this also harbors the risk of unnecessary financing and disputes between the coalition partners will be solved by financial gifts.

The state gets fresh money by issuing bonds on the capital market. With the purchase of a government bond, an investor lends money to the state and gets interest. In the long run, the loan must be repaid – unlike private individuals, this can be moved far into the future. This is how long the state has to pay interest from its annual households.

So far, Germany has had a top bereau at the rating agencies, which means that the state can borrow money on very good interest rates. Experts do not see this rating in danger even in the event of a greater debt. Germany was able to hold its AAA rating even with a debt rate of 82 percent in the 2010 financial crisis. Whether this will succeed this time will also depend on how much trust the agencies rely on the competitiveness and economic power of the country.

However, the plans could also have consequences for house builders, for example. Immediately after the announcement, the building interest rates rose – this is related to the return of federal bonds. Whether the effect continues permanently cannot be predicted seriously, the building interest rates change daily and can fluctuate noticeably.

The Union and the SPD cannot decide on their plans alone-because it is about changes in the Basic Law, a two-thirds majority is necessary. In the new Bundestag, AfD and Left are so strong that they could block the reform. Therefore, the old Bundestag should quickly decide. But here too, voices of Greens or FDP are necessary – and they are more than unsure. The most likely you could find a compromise with the Greens.

The Greens fear that the package is financed with expensive election gifts such as the mother’s pension and a higher commuter flat rate, but that the country hardly progresses. With some changes, you would take part in the exception of the debt brake for the defense. They want to organize the billions for the infrastructure differently and make sure that the money really flows into additional projects. They want to prevent infrastructure expenditure from being financed from the normal household, but from the special pot in order to clear budget funds for election gifts.

One suggestion is that the package is divided: the debt brake exception could decide on the old Bundestag with votes from the Union, the SPD and the Greens. For infrastructure billions, the probably future Chancellor Friedrich Merz (CDU) would have to find a solution not only with the SPD and the Greens in the new Bundestag, but also with the left. This is the only way he would have the necessary majority.

Hardly for the SPD. Because the billions are particularly important for the infrastructure – and in this variant they would not be guaranteed. Everything would depend on whether the Union and the left could work together. In the event of a split, the decision of the defense exception is no longer considered safe. Because many MPs from the old SPD parliamentary group will not be there in the next Bundestag. It is open whether you would still stick to a faction line or to reject part one of the agreement because the infrastructure billions are missing.

No, the law has to do several rounds in parliament. After the first reading today, for example, there is still a hearing in the budget committee. The decisive reading and coordination is currently planned for March 18. There is not much more time either, because the new Bundestag meets on March 25th.

In addition to the Bundestag decision, a change in the Basic Law needs at least two thirds of the country voices – and they are not certain either. Three federal states with green government participation (Baden-Württemberg, North Rhine-Westphalia and Bremen) demand that the countries get more than the planned 100 billion from the special infrastructure pot. Federal states with the left, FDP or BSW in the government cannot agree anyway because their government parties do not find a uniform line. And so far the free voters in Bavaria have also left their consent open.

The Union and the SPD would then have lost at least the basis of their previous agreements. Without the additional money, many projects will not be affordable – or violent cuts in other areas in the household would be necessary. It is uncertain whether the SPD would still be willing to rule with the Union under these conditions. At least a lot would have to be discussed on the table again and completely new. However, there is no real alternative to a black and red coalition after the Bundestag election if you exclude cooperation with the AfD and minority governments.