Germany moves to rewrite debt rules to unleash defense spending

BERLIN — Europe’s most powerful economy is poised to take a major step to bolster its defense capabilities, with Germany’s chancellor-in-waiting Friedrich Merz announcing a plan to partly exempt defense spending from the country’s constitutional fiscal restraints.

“In view of the threats to our freedom and peace on our continent,” Merz said Tuesday evening in Berlin, the motto “whatever it takes” must now apply to the country’s defense.

The move comes as European leaders grow increasingly alarmed by the posture of the Trump administration in the U.S. toward NATO and Ukraine. Merz had pushed to unlock German defense spending in advance of a crisis summit of the EU’s 27 national leaders in Brussels on Thursday in order to signal his country’s new resolve.

“The political developments in Europe and the world are evolving faster than we anticipated just a week ago,” Merz said. “Germany and Europe must now undertake extraordinary efforts to ensure our defense capabilities.”

Merz proposed that defense spending above 1 percent of gross domestic product be exempted from the restrictions of Germany’s constitutional debt brake, which limits the structural budget deficit to 0.35 percent of gross domestic product, except in emergencies. He did not provide details on how additional defense spending capacity would be used.

Merz announced the plan to loosen restrictions on defense spending alongside the leaders of the Social Democratic Party (SPD), with whom his conservatives are currently in talks to form a governing coalition.

“The challenge of investing in a strong and secure Europe,” said SPD co-leader Lars Klingbeil, is “perhaps the most important task of my political generation, and with a view to the White House and the events that happened last Friday there in the Oval Office with President Zelenskyy, it has become all the more clear that we need a lot more money for our defense and for security in Europe.”

Klingbeil also suggested that the probable next coalition government consisting of Merz’s conservatives and the SPD would undertake a more fundamental reform of the debt brake by year’s end to allow for additional spending.

“We have firmly agreed,” he said, that “we will revise the debt brake by the end of 2025 to enable new investments.”

The announcement on possible debt brake changes comes as Germany’s Bundesbank on Tuesday proposed a reform of the debt brake that would lift the cap for annual net borrowing to 1.4 percent of GDP (from 0.35 percent currently), which would create around €220 billion in additional spending room by the end of the decade.

The conservative and SPD leaders also announced a proposed €500 billion special fund to finance infrastructure projects outside of normal budgetary spending over the next decade — a plan that seems designed to appeal to left-leaning lawmakers who otherwise might oppose loosening debt rules to enable defense spending alone.

Still, passage isn’t assured. Merz needs a two-thirds majority in parliament to partially exempt defense spending from constitutional fiscal restraints and to pass the special fund on infrastructure. 

Merz and the SPD were under pressure to act fast not only given the rapid deterioration of the transatlantic NATO alliance, but also because the far-right, Russia-friendly Alternative for Germany (AfD) party and The Left, which opposes military spending, will have the strength to potentially block moves to enable more defense spending once Germany’s newly elected parliament convenes by March 25.

For this reason, the conservatives and the SPD intend to bring the proposals up for a vote in the current parliament.

In order to get their required majority, however, they would need the support of the Greens. But many Greens politicians have already suggested they may oppose the proposals unless they come with more fundamental and immediate reform of Germany’s debt brake to allow for greater spending to stimulate the economy and facilitate a clean-energy transition.

“What they conveniently forgot to mention is that they can’t push through any of their plans on their own — they need the Greens’ votes,” Felix Banaszak, co-leader of the Greens, told POLITICO, adding that the party would “take our time to review their proposals carefully before making a decision.”

“A comprehensive reform of the debt brake remains essential — not just to safeguard our security and freedom in the long run, but also to ensure investments in climate protection, economic growth, and a well-functioning infrastructure,” Banaszak said.

This article has been updated.

Johanna Treeck contributed reporting from Frankfurt.