Germany will go to war on defense with the approval of Brussels
Germany seeks exemption from European debt rules to finance military spending. Facts and insights
Germany has formally requested the European Commission to be able to derogate from the community rules on public debt for the period 2025-2028, due to the expected increase in military spending. The application, presented through a communication sent by Finance Minister Jörg Kukies to the Brussels authorities, revealed by Reuters and reported by Handelsblatt, is dated last Thursday. Berlin justifies the request with the ongoing conflict between Russia and Ukraine, underlining that the necessary strengthening of defensive capabilities will have a significant impact on public finances.
GERMANY'S REQUEST
In his message, Kukies, the current Social Democratic minister who will probably not be part of the next government, highlighted how the growing threat posed by Russia and German support for Ukraine require a rapid and substantial increase in military spending. To this end, Germany intends to exceed the limit of 1.5% of annual gross domestic product on defense spending, as proposed by the European Commission for the next four years without affecting the debt analysis. Normally, a budget deficit above 3% of GDP would lead to corrective measures from Brussels, but Berlin hopes for greater flexibility.
Kukies also expressed the federal government's support for the Commission's initiative aimed at strengthening the Union's collective defense capacity. It should be noted that the outgoing minister had already anticipated his intention to avoid violations of European fiscal rules despite the increase in spending for the Bundeswehr. In this context, the Bundestag and Bundesrat have launched constitutional changes to allow the future executive to establish a special fund of 500 billion euros intended for the modernization of infrastructure. Only a marginal part of such investments will be subject to the strict German debt brake.
THE DIFFICULT POLITICAL BALANCE IN THE TRANSITION OF GOVERNMENT
The attempt to obtain an exemption is part of a politically delicate phase for Germany, characterized by diplomatic moves at European level which took place in the shadow of the transition between the outgoing government and the future one. According to the economic daily Handelsblatt, already at the beginning of March the German ambassador to the European Union, Michael Clauß, had unexpectedly proposed a relaxation of the rigid European fiscal rules, traditionally defended by Berlin. This change of line was motivated precisely by the difficulty of reconciling the new investment package for defense and infrastructure with the current EU regulations on debt.
Regulations that put future Chancellor Friedrich Merz and the designated Finance Minister, the Social Democrat Lars Klingbeil, in a complicated position. Because without a review of European rules, massive investment plans risk remaining a dead letter. The European Union, for its part, found itself faced with a dilemma: despite having urged Berlin to increase public spending, granting an exemption now would risk creating a precedent that would be difficult to manage in the future.
THE THINK TANK STUDY BRUEGEL
According to a study by the Bruegel think tank, with the rules currently in force Germany risks not being able to fully use the infrastructure fund or adequately finance military spending. The rules, which Berlin itself had contributed to tightening, leave the future federal government a margin of maneuver defined by Brussels researchers as "purely mathematical": without a budget surplus, the country could not make significant new expenditure.
The authors of the study, Jeromin Zettelmeyer and Armin Steinbach, underline that even strong political declarations, such as that of Merz who promises to do "everything necessary" for defense, come up against technical constraints that are difficult to circumvent.
EUROPEAN OBSTACLES
The German reform proposal has also encountered resistance both in Southern European countries, which have long been in favor of greater flexibility, and in Northern countries, which have historically been intransigent on budget rules. Both blocs have viewed Berlin's request with suspicion, accusing it of opportunism in light of its traditional fiscal rigidity, embodied for years by Wolfgang Schäuble and Angela Merkel, and again recently by figures such as former liberal minister Christian Lindner.
A European diplomatic source who preferred to remain anonymous told the Handelsblatt that Berlin would now have no choice but to become more "French". The previous "very German approach" didn't work, the official explained, "most other countries, like Italy or France, would have simply taken on more debt and dealt with the consequences later. But the Germans, so obsessed with the rules, wanted to try to change them first."
Aware of the difficulties of an overall reform, Berlin is therefore now exploring the possibility of a more flexible interpretation of the debt reduction plans, to be negotiated with Brussels. According to Handelsblatt, the idea would be to rely on more optimistic economic growth forecasts, although Germany's potential growth rate is estimated to be below 0.5% per year, a level that leaves little room for maneuver.
In the community environment, a certain skepticism towards the German requests persists. Some member states, which have already found internal solutions to finance the increase in military spending without resorting to new debt, expect a similar effort from Berlin. Furthermore, to unlock fiscal margins, Germany will likely have to demonstrate a concrete commitment to long-term structural reforms, a task that promises to be particularly complex for the future government.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/spazio-e-difesa/germania-deroga-debito-spesa-militare/ on Wed, 30 Apr 2025 05:50:09 +0000.