Merz seeking to boost German defense spending and aid to Ukraine with €200 billion fund

Friedrich Merz, the likely next chancellor of Germany, whose CDU/CSU bloc won the parliamentary elections, has initiated discussions to create a new €200 billion ($210 billion) fund to increase defense spending and support Ukraine, as reported by Bloomberg.

Merz is exploring ways to bypass Germany's strict borrowing limits to allocate funds for modernizing the country's aging military.

He has pledged to increase investments in the German army to counter Russian aggression. However, any decision will require a two-thirds majority in parliament, which may be challenging due to opposition from marginal parties.

To expedite the process, Merz and his allies are considering pushing for a vote on a new, larger military package before the new parliament convenes on March 24.

One proposal involves establishing a special fund for new military expenditures and aid to Ukraine. Alternatives include expanding the existing €100 billion fund or adapting the "debt brake" to permit additional defense spending.

Merz and SPD leader Lars Klingbeil plan to discuss Ukraine support and defense spending in a phone call on Tuesday, aiming to clarify details in the coming days.

News of potential increased defense spending has boosted European defense stocks, with companies like Rheinmetall AG, BAE Systems Plc, and Leonardo SpA seeing gains.

The Goldman Sachs European defense stock basket has risen approximately 40% since Donald Trump's election victory in early November.

On February 23, Merz declared victory for his political party in the Bundestag elections.