Bloomberg: Germany discusses creating €200 billion fund to support its army and Ukraine

Germany's incoming Chancellor Friedrich Merz has begun talks with the Social Democrats to approve a €200 billion defence spending package as soon as possible. 

Bloomberg sources said, speaking on condition of anonymity, that representatives of Merz's Christian Democrats and the Social Democrats are discussing ways to get around Germany's tight borrowing limits to free up resources for the country's outdated military.

They said they are considering pushing a vote on a new package, which would be twice as large as the one approved three years ago, through the outgoing parliament.

Merz promised to increase investment in the German military to counter Russian aggression, but his plans ran into trouble after the far-right and left secured a blocking minority in the next parliament. 

With less than two-thirds of the seats, the main parties do not have the votes to ease constitutional restrictions on government borrowing. However, they could get around this problem by pushing through a vote before the new parliament meets for its first session on 24 March.

The sources said one idea is to set up a special fund for new military spending and aid to Ukraine. Other options include expanding the existing €100 billion fund or adapting the so-called debt brake to allow for additional defence spending. 

Either of these options would require a two-thirds majority of MPs, which will be much harder to secure in the new parliament.

"There is now a blocking minority on the far left and the far right," Merz told reporters on Monday. He added that the lower chamber of the parliament "is still capable of making decisions at any time".

"Whether we should decide or must decide is something I will discuss with the parties that are still in the Bundestag," Merz said.

Merz and SPD leader Lars Klingbeil are scheduled to hold a phone call on Tuesday to discuss support for Ukraine and defence spending, and both hope to clarify as many details as possible in the coming days, sources said.

Olaf Scholz, the outgoing chancellor, also raised the possibility of calling parliament into an emergency session, saying a similar move was made in 1998 when Germany had to decide on the war in the former Yugoslavia.

"It’s a rare occurrence for parliament to reconvene – but it wouldn’t be the very first time it’s happened," Scholz said.

On 23 February, Germany held early federal elections. According to the results, the right-wing conservatives CDU/CSU won the most votes, while the far-right Alternative for Germany got its best result in history.