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(Bloomberg) — German lawmakers passed a landmark spending package, taking a major step toward unlocking hundreds of billions of euros in debt financing for defense and infrastructure and heralding the end of decades of budget austerity.
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The controversial legislation — pushed by conservative Chancellor-in-waiting Friedrich Merz — was approved Tuesday in the lower house of parliament with 512 votes out of a total of 733, comfortably clearing the two-thirds threshold required for changes to the country’s constitutional borrowing rules.
The bill, also backed by the Social Democrats and the Greens, would largely release defense spending from the so-called debt brake, creating a potentially unlimited supply of money to rearm to deter Russia. It would also set up a €500 billion ($546 billion) fund to invest in the country’s aging infrastructure.
“This is possibly the biggest spending package in the history of our country,” Lars Klingbeil, the co-leader of the Social Democrats and a likely cabinet member in the next governing coalition, said during the debate in Berlin. “Germany must take on its leadership role in Europe.”
Germany’s shift to an expansive fiscal policy promises to revive Europe’s largest economy after two years of contraction due to structural problems including high energy costs, sluggish manufacturing and an overbearing bureaucracy. The historic decision — expected to also help bolster growth across the region — was spurred by Donald Trump’s shift away from the transatlantic alliance.
While German politicians now bear “an enormous responsibility,” the huge borrowing authorizations approved Tuesday can help spur growth and boost competitiveness, Peter Adrian, president of Germany’s DIHK industry lobby, said in an emailed statement.
“The billions must be used wisely and efficiently,” he said. “If this doesn’t happen, this massive debt could become an enormous risk.”
Germany’s benchmark DAX index was little changed on the news after touching a record earlier. The country’s bonds erased an earlier decline after the news. The euro slipped. Both German yields and the currency have risen significantly this month in anticipation of the spending boost.
Following the lower house’s approval, the legislation will head to a vote on Friday at the Bundesrat, where Germany’s 16 federal states are represented. If approved there — which is seen as likely after local governments were promised billions of euros — it would then be signed into law by President Frank-Walter Steinmeier.
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