BERLIN: German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on Friday on a massive increase in state borrowing in Europe's largest economy, sources close to the negotiations said, in news that sent the euro soaring.
Merz's conservatives and the Social Democrats, who are in negotiations to form a government after an election last month, had proposed a €500 billion fund for infrastructure and sweeping changes to borrowing rules to revive growth and ramp up military spending.
Decades of German fiscal conservatism have been upended by US President Donald Trump's radical policy shifts, with Merz warning that a hostile Russia and an unreliable US could leave the Europe exposed.
To reach the two thirds majority required for the necessary constitutional changes, though, they need the support of the Greens who had hitherto rejected their plans, worried the new funds might be used simply to finance policies such as tax cuts.
The three parties, however, reached a deal on Friday, two sources close to the talks said, The news sent euro zone government bond yields, shares and the euro currency jumping on expectation the plan would boost the wider European economy.
"There is a deal," the source said after German newspaper network RND had previously reported a compromise. A Greens source said they were happy with the deal.
One source familiar with the talks said the compromise includes the allocation of €100 billion for the climate and economic transformation fund.
The revised debt deal is being examined by finance ministry officials, two parliamentary sources said. Another source said some details were still being hammered out. The parliamentary groups of all three parties were hastily convened to meet at 12:00 GMT to discuss the deal.
Merz wants to secure the funds before a new parliament convenes on March 25, where they risk being blocked by an expanded contingent of far-right and far-left lawmakers.
On Thursday Merz had urged a quick agreement on the issue during a fiery parliamentary debate.
When it came to the armed forces in particular, "any further delay" in boosting spending "would be irresponsible", he said.
"In view of the alarming security situation in Europe in every respect and the growing economic challenges in our country, far-reaching decisions... cannot be postponed any longer," Merz said to lawmakers.
Stressing that action needed to be taken quickly, SPD parliamentary leader Lars Klingbeil said to MPs: "When history knocks at our door, then we must open it — we don't know if we will have a second chance."
The incoming government is keen to get the spending plans approved before the newly elected parliament convenes at the end of this month.
In the new chamber the far-right Alternative for Germany (AfD) and the far-left Die Linke, who both oppose the plans, would have the numbers necessary to block them. — Reuters
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