Sources Report German Parties Reach Agreement on Historic Debt Deal

Sources close to the negotiations revealed that German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on Friday to significantly increase state borrowing in Europe's largest economy, a move that caused the euro to surge. Merz's conservative party and the Social Democrats, who are in talks to form a government following last month's election, had proposed a 500 billion euro fund for infrastructure, alongside major changes to borrowing rules aimed at boosting growth and enhancing military spending.

Decades of German fiscal conservatism have been disrupted by U.S. President Donald Trump's radical policy shifts, with Merz warning that a hostile Russia and an unpredictable U.S. could leave Europe vulnerable. However, to secure the two-thirds majority needed for constitutional changes, they require the support of the Greens, who had previously opposed the plan, fearing the new funds might only be used to finance policies like tax cuts. According to two sources close to the negotiations, the three parties reached a deal on Friday, sending euro zone government bond yields, stock shares, and the euro soaring in anticipation that the plan would "There is a deal," said the source, following a report from German newspaper network RND about a compromise. A Greens source confirmed their satisfaction with the agreement.

One source familiar with the discussions revealed that the compromise includes a 100 billion euro allocation for the climate and economic transformation fund.

The revised debt deal is currently being reviewed by finance ministry officials, according to two parliamentary sources. Another source mentioned that some details are still being finalized.

Merz aims to secure the funds before the new parliament convenes on March 25, as the funds could be blocked by a larger contingent of far-right and far-left lawmakers.