An EU exemption allows 16 member countries, including Germany, to raise their defence spending by 1.5% of GDP without having to adhere to the bloc’s strict budget deficit and debt limits that would otherwise put them at risk of deficit proceedings.
Yesterday, the European Commission (EC) greenlit Germany’s budget proposal covering the years 2025-2031, even though it entails new debt to finance heavy investments in defence, infrastructure and climate protection.
The go-ahead should ease concerns that Berlin’s move to invest 500 billion euros in the budgeted period would render it subject to legal consequences since EU member countries are required to adhere to strict deficit and debt limits.
The EC determined that while Germany is likely to breach the 3% deficit limit initially, it would be back on track by 2028 and that its debt burden would ease further in the second half of the seven-year period. Accordingly, the EC indicated that temporary breaches of EU rules were unlikely to trigger an excessive deficit procedure against Berlin.
The Commission also gave Berlin permission to invoke a special rule that exempts specific defence expenditures from the deficit provisions when they are intended to expedite improvements in European defence capabilities and to deter Russia. This exemption allows EU members to spend an additional 1.5% of gross domestic product (GDP) on defence over four years without risking deficit proceedings.
Berlin’s Finance Ministry submitted its seven-year fiscal policy plan to Brussels in July, after the new German government took office in May. While EU countries are usually required to submit five-year plans, in certain conditions, they may submit longer-term proposals that give them more leeway in meeting the bloc’s deficit and debt ceilings.
Since the planned investments align with EU priorities and are expected to increase labour supply, reduce excessive bureaucratic burden and modernise public administration, the EC approved the extension.
