German Chancellor Friedrich Merz has been accused by economists of channelling billions of euros of new debt intended for defence and infrastructure investments to fund a higher welfare budget and other ongoing expenditures.
The Bundesbank and two economic think-tanks have warned that a sizeable portion of the government’s planned additional borrowing was likely to be used for areas that should be funded from the ordinary budget — also including tax cuts or subsidies.
After winning Germany’s federal elections in February, Merz struck a landmark deal with the Social Democrats and the Greens to loosen the country’s constitutional borrowing limit for infrastructure and defence spending.
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