Debt brakes and German politics don’t mix well with Trump’s demands. The same applies to France.
Hello Germany, Where’s the Money?
Reuters reports Germany’s Merz Rules Out Quick Reform of State Debt Limits
Election winner Friedrich Merz on Tuesday ruled out a quick reform to Germany’s state borrowing limits known as the “debt brake” and said it was too soon to say whether the outgoing parliament could wave through a massive military spending boost.
Some investors and political parties are urging rapid reform of the debt brake to lift Europe’s largest economy out of the doldrums and fund an overhaul of Germany’s military that has found a new urgency with Donald Trump back in the White House.
“It is out of the question in the near future that we will reform the debt brake,” he said. There is “quite a lot of work to be done, a lot of difficult work to be done”.
Germany is also considering a special fund for increased military spending and a source in Merz’s party said it could be hundreds of billions of euros.
It take’s a two-thirds majority in the German parliament to exceed the debt brake. The odds of AfD and Die Linke voting for more military spending is roughly nonexistent.
Even Merz is ruling it out. However, there is still a chance now if there’s an emergency session of the outgoing parliament.
Parliamentary Recall?
France24 reports Germany’s Next Leader Grapples to Boost Defense Spending
Only hours after his party’s election win Sunday, Merz said his “absolute priority” would be to strengthen European security as US President Donald Trump had shown indifference to the continent’s fate.
The chancellor-in-waiting will however have to find a way to work within Germany’s budgetary straitjacket — which limits new borrowing to 0.35 percent of GDP — or find a way to escape it.
The make-up of the incoming parliament makes it challenging to change the constitutional debt brake.
Far-right and far-left parties critical of extra defense spending will have enough seats to block any amendment to Germany’s Basic Law.
Merz has suggested he is open to an unusual manoeuvre: recalling the current Bundestag before the new one is formed to swiftly approve new money.
According to Bloomberg News, he is in discussions to top up Germany’s special defense fund with another 200 billion euros ($210 billion).
Racing the changes through before MPs take their seats on March 25 “will be a challenge, but should be doable if Merz really pushes for it”, said Berenberg Bank analyst Holger Schmieding.
Merz said Sunday that “independence from the USA” in defense matters was a strategic necessity and that Germany, long reluctant to throw its weight around, would have to do its part.
Estimates by defense experts put the extra funding requirement at around 200 billion euros, the head of the IW Koeln economic institute Michael Huether told the Rheinische Post daily.
But getting the necessary two-thirds majority in the new Bundestag was “hardly conceivable” in the face of potential opposition from the far-right Alternative for Germany (AfD) and far-left Die Linke, he said.
“An exception to the debt brake is practically unavoidable to ensure the Bundeswehr is adequately equipped,” Defence Minister Boris Pistorius, a senior figure in the Social Democrats, told Bild newspaper.
Quizzed on Tuesday on the idea of acting before the new parliament sits to push through changes, Merz conceded Germany was in a “difficult situation”.
“We now have four weeks to think about it,” Merz said, adding that he would hold confidential talks with the Greens, Social Democrats and the liberal FDP.
Such a post-election manoeuvre has precedent. In 1998, MPs approved a NATO-backed intervention in Kosovo, Germany’s first active combat operations since World War II.
The Greens, whose votes would be needed for a constitutional change, called for a full “reform of the debt brake” — an option still shunned by Merz.
“A reform of the debt brake in the near future is out of the question,” Merz said Tuesday.
Any spending boost would be a “spectacular U-turn for Merz”, Schmieding said, and would send an “early message to Trump and Putin that Germany is raising its military spending and will stand by Ukraine”.
The Price for Weapons Agreement
The Green party is willing to go along with exceeding the debt limit if CDU will remove the debt brake in total.
Good luck with that standoff. CDU/CSU and AfD say no to that idea.
Merz is going to have to pick his poison.
A Race Against Time
The Guardian reports German Parliament in Race Against Time to Sign Off on New Defense Fund.
German parliament in race against time to sign off on new defense fund
Friedrich Merz, expected to be next chancellor, has spoken of urgent need for ramped-up defense, but ‘blocking minority’ could form in future BundestagGermany just about met the NATO target to spend 2% of its GDP on defense last year but is falling far short of US demands that it boost its spending to nearer 5%.
Representatives of both camps were discussing creating a fund similar to the €100bn (£82.9bn) pot that the current chancellor, Olaf Scholz, created in order to increase Germany’s military competence shortly after Russia launched its full-scale invasion of Ukraine in February 2022.
That fund has almost dried up, adding urgency to an already fractious political moment. The new fund would be in the region of €200bn (£165.9bn), Deutschlandfunk (DLF) reported. The SPD and CDU/CSU both declined to comment.
If it has enough backing, the new fund could be approved by the current parliament before it is dissolved at the end of March. A constitutional reform to ease the so-called “debt brake” that limits new state borrowing to 0.35% of GDP – seen by some as the only way of allowing for consistently increased military spending – is far more controversial.
The thorny issue was explosive enough to bring down Scholz’s “traffic light” coalition, and the parliament resulting from Sunday’s election is also expected to be hostile due to a huge expansion of far-left and far-right factions who have said they would obstruct a relaxation of the debt brake if the intention was to fund the military.
Together, the far-right Alternative für Deutschland (AfD) and far-left Linke party will have more than a third of seats – enough to form a so-called “blocking minority”.
Questions over the debt brake are likely to plague it.
Britta Haßelmann, co-leader of the Greens’ parliamentary group, said “We urgently need future investments in both domestic and foreign security, for climate protection and to support the economy.”
Do or Die Now
My lead chart show the political reality of the situation.
Exceeding the debt brake for defense spending can only be done now.
It would be possible for Germany to increase defense spending in the new parliament, but not if it exceeds the debt brake.
That would mean giving up something else. But what?
Opposition Party Rights
DW discusses The Role of Germany’s Parliamentary Opposition
What is the role of the opposition?
In a parliamentary democracy like Germany, the tasks of the opposition have traditionally included scrutinizing the work of the government, initiating debate about policies and presenting alternatives to bills brought forward by government politicians.
What special rights does the biggest opposition party have?
The number of seats a party holds in the Bundestag, allocated according to the percentage of votes they won, does matter when it comes to the time granted to speakers. The stronger the party, the more time parliamentarians will have to speak in debates.
The Bundestag budget committee is traditionally headed by someone from the largest opposition party. [I suspect they will kill this]
What tools does the opposition have?
One tool to oversee the work of the government is the enquiry. All parliamentary groups can file an enquiry containing questions directed at the government. In general, enquiries are almost exclusively filed by the opposition. The number of seats a party has in the Bundestag doesn’t matter when it comes to enquiries – the largest opposition party has no special privilege here.
Traditionally a quarter of all parliamentarians need to vote in favor of initiating a fact-finding committee for it to go forward. [AfD is just short at 24 percent. But AfD and the Die Linke are 34.3 percent.]
What roles do opposition parties play outside of the Bundestag?
All parties represented in the Bundestag, including the opposition, are also represented in committees or councils throughout civil society in Germany.
Parliamentarians sit on the boards of Germany’s public broadcasters and the Federal Agency for Civic Education, which provides students and other interested parties with information about what it means to be a German citizen – as well as Germany’s Nazi past and current right-wing crimes.
Budget Concerns in France
French president Emmanuel Macron is willing to spend more on defense. However, that is even harder for France than Germany.
Unlike Germany, France exceeds EU rules on spending.
On January 10, I commented The Political Crisis in France Is About to Get Much Worse
The entire eurozone is in shambles, and Trump’s demands will accelerate the crisis.
The technocrat French Prime Minister proposes the same budget that collapsed the prior French government.
How is that supposed to work?
Expect a Financial Crisis in Europe With France at the Epicenter
Behind all this bickering is a huge debt crisis.
Who called that?
Oh, I found it: March 27, 2024: Expect a Financial Crisis in Europe With France at the Epicenter
The EU never enforced its Growth and Stability Pact or Maastricht Treaty rules. The crisis is coming to a head with France and Italy in the spotlight.
EU’s Golden Rules
According to the reformed rules, an EU member state’s debt may not exceed 60% of gross domestic product (GDP).
Highly indebted EU countries with debt levels over 90% of GDP have to reduce their debt ratio by one percentage point annually, countries
Additionally, the general government deficit — the shortfall between government revenue and spending — must be kept below 3%.
According to the commission’s economic forecast, France is at -5.5%, Italy is at -4.4% and Belgium is at -4.4% and will breach this deficit limit in 2024.
Austria, Finland, Estonia, Hungary, Malta, Poland, Romania, and Slovakia also have deficits that are too high according to the rules. Spain is at exactly -3.0%.
On June 21, 2024, I commented Debt Brakes and Treaty Requirements About to Smash the EU
The EU has launched an Excessive Debt Proceeding against France. It won’t stop there.
The Bayrou government is struggling to get agreement on a 5.5 percent deficit when it needs to get to 3.0 percent while shrinking debt from 112 percent of GDP to 60 percent of GDP.
And to get to 5.5 percent, it needs to pass a retroactive tax hike for 2024.
On December 17, 2024 I asked So, What Country Wants to Be Like Germany Now?
The collapse of Germany shocks many. But I have been discussing why this was inevitable for over a decade.
Trump Demands Defense Spending 5 Percent of Europe GDP, No Chance of That
On January 9, I noted Trump Demands Defense Spending 5 Percent of Europe GDP, No Chance of That
Much of the EU is struggling to get defense spending up to 2 percent of GDP. 5 percent of GDP has zero chance. Let’s discuss the math.
The entire eurozone is in shambles, and Trump’s demands will accelerate the crisis. One seriously must wonder if that is his real goal.