Berlin Raises the "Kenyan Flag"

Germany’s outgoing parliament has held a historic vote to approve massive spending. Unprecedented times emboldened the conservative Christian Democratic Union (CDU) and its sister Christian Social Union (CSU) party to join with the Social Democrats (SPD) and the Greens to loosen the country’s constitutional debt brake, allowing for enormous investment in defense and infrastructure. They did so now to circumvent an incoming Bundestag that would almost certainly be more resistant.

The unconventional move to form a “Kenya” coalition, so named because the parties’ colors—black, red, and green—are those of that African nation’s flag, was a preemptive strike to equip Germany as it confronts new geopolitical realities. A two-thirds majority was needed to loosen the 16-year-old debt brake, which limits annual federal government borrowing to no more than 0.35% of GDP. Chancellor-in-waiting Friedrich Merz of the CDU seized the moment and conceded ground to the Greens and SPD to push through the constitutional amendment, knowing that he would be stymied in the next legislative period.

After the three parties hammered out the main points of a deal, creating a €500 billion fund for infrastructure and a debt-brake waiver for defense spending above 1% of GDP, Merz declared that “Germany is back.” He was probably referring to Germany’s economy, Europe’s largest, which has been the most sluggish among G7 peers since the pandemic. Although Merz is being criticized by some in his own party for flip-flopping on fiscal discipline, the German stock market applauded the anticipated investment and closed higher.

The license to spend on defense, which covers a wide range of purposes, from the armed forces to cybersecurity, stands out. For more than three decades, the United States prodded Germany to be a capable partner and increase such spending. Now, with a transatlantic relationship in the throes of disruption, Germany has shed its inhibitions on boosting its military.

Berlin’s next government, a likely Grand Coalition between the CDU/CSU and the SPD, will accelerate the “Zeitenwende”, the turning point that still-Chancellor Olaf Scholz set in motion. The release of the constitutional debt brake may cast off spending constraints on Berlin, but delivering on the investment will be critical to ward off opposition forces in the new parliament, most on the far left and far right, that did not appreciate the raising of the Kenyan flag.