World News | German Parties Agree Deal to Loosen Debt Limit, Expand Defence Spending as Europe Called to Do More

Berlin, Mar 14 (AP) German lawmakers reached an agreement on Friday to exempt some defence spending from the nation's tight rules on running up debt as European leaders are scrambling to shore up the continent's defences themselves in the face of a Trump administration that is threatening to back out.

The debate over the deal cast defense spending as an issue of growing urgency as doubts increase about the US commitment to European allies.

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Long-term strains on Germany's debt limits, combined with the recent shift in US security policy under President Donald Trump, pushed the negotiations into a deal that now goes before the parliament.

Friedrich Merz, the conservative leader and Germany's likely next chancellor, announced the deal. Merz's Union bloc, outgoing Chancellor Olaf Scholz's center-left Social Democrats and the Greens joined together for the agreement.

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The group seeks to loosen Germany's so-called “debt brake” — which allows new borrowing worth only 0.35 per cent of annual gross domestic product — in order to spend more on defence.

They also want to set up a 500 billion euros (USD 533 billion) investment fund, financed by borrowing, to pour money into Germany's creaking infrastructure over the next 12 years and help restore the economy to growth.

Merz told a news conference the defence deal was “a clear message to our partners and friends, but also to our opponents, the enemies of our freedom, we are capable of defending our selves and we're fully prepared for that".

He added: "There will be no lack of financial means to defend freedom and peace on our continent.”

In a concession to the Greens, the agreement also includes 100 billion euros from the investment fund for climate-related spending, up from 50 billion euros in Thursday's debate. The Greens were scheduled to hold their own news conference Friday afternoon.

Merz said the compromise was achieved by expanding the scope of the defence spending exemption to include funding for civil defense, intelligence agencies, cyber defence and assistance to Ukraine.

The deal would also add provisions to the investment fund to ensure that it was not simply used to pay for already approved projects but would mean additional, new investment — a key concern expressed by the Greens.

If passed, this could enable more than 1 trillion euros in new borrowing and spending over 12 years.

The Greens, during Thursday's parliamentary debate, criticised Merz for repeatedly rejecting their previous recommendations to reform the debt brake to ease investment in the economy and measures against climate change.

But Merz and Scholz needed the Greens' votes in order to achieve a two-thirds majority in parliament because the debt brake is anchored in the constitution.

Merz and Scholz's parties sought to get a deal through the outgoing parliament, rather than the newly elected one since parties that could agree to the plans have just over one-third of the seats.

The outgoing German parliament is expected to vote on the measure Tuesday. The incoming lawmakers take their seats March 25.

Opponents of increasing the debt brake for defense, such as the far-right, anti-immigration Alternative for Germany party, say the debate should take place after the incoming parliament is seated — to reflect the will of the voters.

Merz's Union bloc and Scholz's Social Democrats are currently in the middle of negotiations to form a governing coalition. (AP)

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