The impending approval of a historic reform to Germany's debt rules will allow for increased investment and higher defense spending, which will help raise medium-term economic growth in both Germany and the euro area. On March 18, the lower house of Germany's parliament, the Bundestag, approved a constitutional amendment to reform the country's so-called ''debt brake,'' a constitutional rule introduced in 2009 that restricts government borrowing, limits the structural deficit to 0.35% of GDP and requires states to run a balanced budget. The reform exempts defense expenditures exceeding 1% of GDP from the debt brake, thereby removing legal limits to German military spending. It also allows the next parliament to establish a 500 billion euro special purpose fund to finance spending for civil protection, intelligence services and military aid for Ukraine, as well as infrastructure and climate-related investments. Additionally, the reform allows German states to run a deficit of 0.35%...
