By Maria Martinez BERLIN (Reuters) - German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on Friday on a massive increase in state borrowing just days ahead of a
Understanding Germany's Massive New Spending Plan
By Maria Martinez
BERLIN (Reuters) - Germany's lower house of parliament is set to vote on Tuesday on a massive surge in borrowing that could boost Europe's largest economy and stimulate growth across the region, as it faces trade tensions with top partner the United States.
German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on Friday, just days ahead of the vote, and Germany's constitutional court threw out on Monday new challenges by opposition parties against the plans.
If passed on Tuesday, the parliament's upper house should approve the package on Friday.
This is what you need to know.
INFRASTRUCTURE FUND
Of the promised infrastructure fund spending of 500 billion euros ($543 billion) over 12 years, 100 billion euros will be channelled into the climate and economic transformation fund, as requested by the Greens.
The rest is dedicated to additional infrastructure investments, with 300 billion euros designated for the federal government and 100 billion euros for the state governments.
FISCAL ROOM FOR THE STATES
Apart from the 100 billion euros from the infrastructure fund, each of Germany's 16 federal states will be allowed to run a small structural deficit of 0.35% of their economic output, as the federal government can, giving them an extra 16 billion euros to spend. Until now, states were not allowed to incur any debt.
DEFENCE SPENDING
A reform of the nation's constitutionally enshrined "debt brake" - which limits public borrowing to 0.35% of gross domestic product - will exempt defence spending above 1% of GDP from the debt rule. The definition of such spending is broad, including civil protection, intelligence and "aid to countries under illegal attack".
UKRAINE SUPPORT
Germany will support Ukraine in its defence against Russia's invasion with 3 billion euros in military aid, upon its approval in the upper house of parliament. The vote is expected next week.
($1 = 0.9179 euros)
(Reporting by Maria Martinez; Editing by Toby Chopra and Tomasz Janowski)
