Germany is set to embark on a major economic and defense shift as political leaders push forward plans for a €500 billion infrastructure fund and an overhaul of the country’s debt rules. The move, agreed upon by the Christian Democratic Union/Christian Social Union (C.D.U./C.S.U.) and the Social Democratic Party (S.P.D.), aims to strengthen Germany’s military and stimulate economic growth. A proposal to amend the constitution and exempt defense spending above 1% of G.D.P. from the country’s strict “debt brake” will be presented to the German parliament next week.

“The threats to our freedom and peace on our continent require immediate action,” C.D.U. leader Friedrich Merz stated. “We must expand our resources for national and alliance defense significantly.” S.P.D. leader Lars Klingbeil echoed the urgency, emphasizing the need to stop the deterioration of Germany’s infrastructure and military capabilities. Economists and investors have long advocated for a reform of Germany’s borrowing limits, which many see as a barrier to necessary investments. Defense industry stocks in companies like Rheinmetall and Hensoldt surged following the announcement, reflecting investor confidence in the shift.

While the proposal marks a significant departure from Germany’s traditionally conservative fiscal policies, it also raises concerns. Critics warn that loosening the debt brake could set a precedent for unchecked government spending. Others argue that while military investment is necessary, broader economic policies must also prioritize social and climate-related projects to ensure sustainable growth. Proponents, however, believe the move is essential to addressing Germany’s stagnating economy and bolstering European security.

Germany’s strict debt brake was enshrined in the constitution in 2009, limiting the federal deficit to 0.35% of G.D.P. annually. While designed to prevent excessive government debt, the rule has come under fire for restricting public investment. The urgency of increased defense spending has grown following the return of U.S. President Donald Trump, who recently froze military aid to Ukraine after a dispute with President Volodymyr Zelenskyy. European leaders fear the U.S. may scale back its N.A.T.O. commitments, making Germany’s military readiness more critical than ever.

As the proposal heads to the Bundestag, its success depends on securing a two-thirds majority, a challenge given the presence of far-right and far-left parties in the newly elected parliament. If passed, this policy shift could redefine Germany’s role in European security and economic stability, demonstrating a willingness to take greater responsibility in both domestic and international affairs. Whether this new strategy will achieve its goals or lead to further economic and political challenges remains to be seen.