On Tuesday (March 19), the German parliament approved a plan to significantly increase spending, marking Germany's departure from decades of fiscal conservatism aimed at restoring economic growth and expanding military spending, ushering in a new era of collective defense in Europe. This plan includes creating a 500 billion euro infrastructure fund and relaxing the lending rules stipulated by the constitution to address the threat from Russia and the challenges brought about by the shift in US policies. This historic fiscal shift not only injected vitality into the German economy, but also laid the foundation for European defense cooperation.

Dual goals of infrastructure fund and defense expenditure

The German parliament has approved a 500 billion euro infrastructure fund and relaxed constitutional lending rules to increase defense spending. This plan was promoted by the leader of the Alliance Party, Mertz, aimed at addressing the threat from Russia and the uncertainty brought about by the shift in US policy. Mertz stated before the vote that this decision is the first step towards a new European defense community and marks a significant shift in Germany's defense readiness.

Political background and international pressure

Faced with hostile Russia and a shift in US policy under Trump's leadership, Germany and other European countries are under pressure to strengthen their defenses. European leaders are concerned that these changes may expose the entire European continent to danger. After last month's election, the coalition party led by Mertz and the Social Democratic Party (SPD) are forming a centrist alliance to push for this spending plan. The support of the Bavarian Free Voters Party cleared the main obstacles for the plan to pass.

Market reactions and economic impacts

Over the past week, this plan has boosted eurozone bond yields, euro exchange rates, and European stock markets. However, before the vote, the German blue chip DAX index gave up some of its gains, German 10-year bond yields fell slightly, and the euro fell slightly. The European Economic Research Center (ZEW) stated that the prospect of a borrowing boom boosted investor confidence in Germany in March beyond expectations. International rating agency Fitch warns that if spending plans are not offset by fiscal consolidation measures or fail to sustain economic growth, Germany's AAA credit rating may face pressure.

summarize

The large-scale spending plan approved by the German parliament marks a significant shift in Germany's fiscal policy, aimed at restoring economic growth and strengthening European defense cooperation through infrastructure funds and increased defense spending. This plan not only injects vitality into the German economy, but also provides financial support to address international challenges, with a short-term bias towards supporting the euro. In the future, the implementation effect of the plan and its impact on economic growth and credit rating will become the focus of attention.