Germany approves massive spending surge to boost defence, economy

Germany's parliament has approved a historic spending surge, marking a significant shift away from decades of fiscal conservatism in an effort to stimulate economic growth and ramp up military spending.

The move is part of efforts to bolster European defence amidst growing threats from Russia and shifting U.S. foreign policy, Caliber.Az reports via foreign media.

The Bundestag's approval of a €500 billion ($546 billion) fund aims to overhaul infrastructure and enhance defence capabilities. This decision, led by conservative leader Friedrich Merz, strengthens his position as the likely next Chancellor, pushing forward a plan to ease Germany’s constitutionally enshrined borrowing limits. Merz called it a critical step towards a new European defence community.

While the reform is expected to support sectors like construction and defence, critics, including some within Merz's own party, have voiced concerns over broken promises regarding fiscal restraint.

Despite this, the move has already buoyed market confidence, with the euro and European stocks seeing gains.

However, economists warn that additional reforms will be necessary to ensure the long-term success of this fiscal expansion, with Fitch Ratings highlighting potential risks to Germany's AAA credit rating if the spending does not lead to sustained economic growth.

The legislation now moves to the Bundesrat upper house for final approval later this week.

By Aghakazim Guliyev