Berlin (Brussels Morning Newspaper) – Germany has requested that the European Commission grant it an exemption from EU borrowing limits to raise defence spending in the near future years, according to a letter from German Finance Minister Joerg Kukies, reported by Reuters.
As reported, Kukies said that Germany was likely to request the exemption. The European Commission has suggested that member states be permitted to increase their defence spending by 1.5% of gross domestic product (GDP) annually for four years without facing the usual disciplinary actions that apply when a deficit exceeds 3% of GDP.
“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,”
Kukies stated in the letter.
What is the European Commission’s proposal on defence spending?
The Commission anticipated that the proposal would gain traction among the 27 EU nations, facilitating a boost in EU defence investment by 650 billion euros over the next four years to deter potential Russian threats.
So far, only Portugal and Poland have expressed interest in the exemption. EU nations with high national debt are wary of increasing borrowing for defence spending. Germany’s request might inspire other countries to pursue a similar path, even though its government debt ratio is 62.5% of GDP in 2024, significantly lower than that of Italy, France, and Spain, which exceed 100% and are hesitant to seek the exemption.
What economic challenges is Germany currently facing?
Germany was the only country in the Group of Seven advanced economies not to experience economic growth over the past two years. Additionally, U.S. tariffs could significantly impact its economy, potentially leading to a third consecutive year of recession for the first time.
Kukies mentioned that Germany could escape such a scenario if it secures a trade deal with Washington. Revitalising the sluggish growth of Europe’s largest economy will pose a significant challenge for the new government in Berlin, which has introduced economic and tax reforms following the agreement made after the February 23 election.
“We reached an agreement on the coalition contract very quickly, efficiently, and promptly. This means all signs point to a swift start,”
Kukies said about the coalition of conservatives and the centre-left Social Democrats (SPD).
Kukies’ Social Democrats will keep the German finance ministry as outlined in the coalition agreement, but he refrained from discussing his own future. Lars Klingbeil, co-chair of the SPD, is viewed as the leading candidate for the role.
