Trillion-dollar law: how the markets assessed the Bundestag’s historic “costly” decision
28 March 2025 09:42
Germany will receive €1 trillion in additional financing at virtually no cost after bond markets reacted positively to the Bundestag’s “historic” defense spending bill. This statement was made on Thursday at a panel discussion organized by the Institute of International Finance by Alexander Weinendts, Chairman of the Board of Deutsche Bank AG. Bloomberg reports, according to "Komersant Ukrainian".
What else did the Deutsche Bank CEO say?
According to Alexander Weinendts, the sudden surplus of money carries the risk of misallocation after years of underinvestment in defense and disorganized procurement systems.
Therefore, according to the banker, the country now needs to spend the money wisely and push forward with structural reforms to guarantee continued growth.
“We need to reduce regulation, we need tax reform, we need labor law reform. So there are many things that still need to happen for these huge investments to have their full effect. We don’t have time to waste,” Weinendts said.
So far, “the market has very clearly approved” the spending package, which cleared its last legislative hurdle last week. As the CEO of Deutsche Bank AG put it: “We can even say that we have received a trillion euros without additional costs.”
As a reminder, on March 18, the Bundestag approved the proposal of the winner of the last parliamentary elections, Friedrich Merz, to allocate up to 1 trillion euros for the country’s defense and infrastructure needs.
On March 22, German President Frank-Walter Steinmeier signed a law passed by the Bundestag amending the Basic Law of Germany to reform the so-called “debt brake” provision. This provision was contained in Article 109 of the German Basic Law and was intended to force the government to adhere to financial discipline.
By its decision, the German parliament allocated hundreds of billions of euros for defense and infrastructure needs to be financed by debt. Thus, decades of austerity were ended and a new period of deficit spending began, designed to boost Europe’s largest economy, modernize infrastructure and restore its defense.
What the historic decision provides for in Germany
According to the adopted law, expenditures for the Bundeswehr, as well as “federal expenditures for civil defense, protection of the population, intelligence services, protection of information technology systems and assistance to states attacked in violation of international law” may be financed by loans in the future.
The new rules apply to all expenditures exceeding one percent of GDP, which corresponds to approximately €43 billion.
The strict ban on borrowing for the federal states is also to be relaxed and reconciled with the federal government. All federal states together would be allowed to take on new debt of up to 0.35 percent of GDP. The distribution of the respective amounts will be regulated by federal law.
According to the amendments to Article 143h of the Basic Law, EUR 500 billion can be raised for infrastructure investments over the next twelve years. The federal states are to use EUR 100 billion for their infrastructure, EUR 300 billion will be transferred to the federal government, and the remaining EUR 100 billion will be allocated for climate protection.
The decision taken by the Bundestag should also unblock the 3 billion euros provided for military aid to Ukraine.
Berlin was forced to act so decisively in terms of financing defense spending after President Donald Trump questioned the United States’ fulfillment of its European security commitments.
According to Bloomberg, markets have generally reacted positively to the fiscal changes, which economists believe should boost growth in the euro region.
