Germany’s outgoing finance minister Jörg Kukies has asked the European Commission to allow Germany temporarily to ignore strict European Union rules that limit government borrowing.
This would help Germany increase its defence spending over the next few years, he said on April 28.
The country’s proposed spending plans included a €500 billion special fund for infrastructure and climate projects, alongside a major new defence programme.
An analysis from the economic think-tank Bruegel published on April 24 estimated that if Germany used the full €500 billion, its debt could rise above 100 per cent of its economic output, far higher than the EU’s recommended limit of 60 per cent.
In a letter, Kukies wrote that Germany saw the commission’s plan to allow some flexibility in the rules as a crucial step.
“We see the Commission’s proposal for a coordinated activation of the National Escape Clause of the Stability and Growth Pact as an important complementary measure to enable increased national defence spending while safeguarding fiscal sustainability,” he wrote.
Under the commission’s proposal, countries could raise defence spending by up to 1.5 per cent of GDP annually for four years without facing penalties for breaching EU budget limits.
The request followed a major announcement earlier this year by Germany’s likely next chancellor Friedrich Merz, who promised a major investment package for defence and infrastructure, representing a shift for Germany, which has traditionally followed tight rules about keeping government spending low.
The rules Berlin is asking for flexibility on were part of the Stability and Growth Pact (SGP), the EU’s system to ensure countries kept their borrowing under control.
The SGP allowed temporary exceptions in extreme situations, including during the Covid-19 pandemic. Under the SGP, countries could miss spending targets in specific cases, for example, if they were investing heavily in defence.
Germany has recently made its own national budget reforms, which some said may be in conflict with EU fiscal guidelines.
For 2024, Germany’s debt has already been forecast at 62.5 per cent of GDP
“From the perspective of boosting defence and fixing Germany’s ageing infrastructure, this spending is good news,” said experts at Bruegel.
“But it also risks breaking the EU’s borrowing rules if Germany uses all the extra money it plans to,” they added.
