Germany Considers EU Borrowing Exemption to Boost Defence Spending

Germany is likely to request an exemption from the European Union’s borrowing limits to ramp up defence spending without violating fiscal rules, German Finance Minister Joerg Kukies said on Friday. Speaking on the sidelines of the IMF and World Bank meetings in Washington, Kukies noted that the final decision is yet to be made and is under discussion within the German government in coordination with the incoming coalition partners. The move aligns with a European Commission proposal allowing member states to increase defence spending by up to 1.5% of GDP annually over four years, despite potential budget deficits.

Several countries, including Portugal and Poland, are expected to pursue similar exemptions as the EU aims to strengthen its collective defence capabilities by investing €650 billion over the next four years. Germany’s parliament recently approved a sweeping €500 billion fiscal package, including a special fund for infrastructure and measures to exempt defence spending from domestic borrowing caps. Kukies emphasized that Germany supports common European financing for military efforts but insists it must focus on genuine joint defence projects.

With Germany being the only G7 nation to see economic stagnation over the past two years, Kukies stressed the urgency of avoiding further recession. He highlighted the importance of reaching a trade agreement with the U.S. to prevent harmful tariffs, which could significantly affect both German and American economies. The new coalition government in Berlin is also prioritizing economic and tax reforms to revive growth, with the Social Democrats set to retain the finance ministry under the agreement reached after the February 23 election.

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