Germany has called for the EU to exempt defence spending from its fiscal rules for longer than Brussels had proposed, marking a significant shift in Berlin’s tough stance on deficit and debt under chancellor-in-waiting Friedrich Merz.
The German ambassador to the EU told other national envoys on Wednesday that Berlin wanted to overhaul EU debt and deficit limits to allow for increased defence spending, according to four officials briefed on the discussion.
The ask, which is a complete reversal of Berlin’s previously frugal stance on public spending and borrowing, goes further than a 4-year exemption floated earlier this week by European Commission president Ursula von der Leyen.
“Berlin wants to make significant defence expenditure possible in the medium- and long-term through an adaptation of the rules,” said a person familiar with the discussion.
A German government spokesperson declined to comment.
The move came after Merz on Tuesday pledged that his country would do “whatever it takes” to defend European peace and security, including a plan to allow limitless national borrowing to fund German defence spending. This step increases pressure on other EU governments to follow suit.
European leaders in recent days have accelerated plans to increase the continent’s “rearmament”, as von der Leyen put it, including by relaxing fiscal rules and possibly setting up an intergovernmental fund with UK participation.
The flurry comes as US President Donald Trump halted military support and intelligence sharing with Ukraine and after his administration cast doubt on long-standing American security guarantees for the continent.
In an extraordinary about-face for a man whose party has long opposed changes to Germany’s strict borrowing rules, Merz on Tuesday announced plans to significantly ease the country’s constitutionally enshrined debt brake and to set up a €500bn fund aimed at boosting infrastructure and revitalising the country’s flagging economy.
The plan will be rushed through the outgoing Bundestag, where Merz and his allies still command a supermajority — and was hailed as a “total game-changer” by long-standing advocates of fiscal reform.
But the conservative leader still needs the support of the Green party, which has reacted angrily to Merz’s U-turn and criticised him for refusing to approve debt-brake reform when he was in opposition. Merz was due to meet Green party representatives on Wednesday.
Germany’s shift comes on the eve of an emergency summit of EU leaders in Brussels, where other capitals will be under intense pressure to follow Merz’s lead in radically increasing military spending.
Berlin’s move “is a clear indication that we have turned the page in terms of defence investments in Europe”, said a senior EU official involved in preparations for the summit.
Mujtaba Rahman, Europe director at political risk analysis company Eurasia Group, said: “The Europeans have finally got the memo, and Merz, von der Leyen and others now clearly see existential risks to European security. The more disruptive Trump proves over Ukraine and Nato, the more fiscal easing for defence we are likely to see.”
Seven EU member states, including major economies Italy and Spain, are below Nato’s defence spending benchmark of 2 per cent of GDP. Just four — Poland, Estonia, Latvia and Greece — spend more than 3 per cent, seen as a bare minimum for Europe’s necessary rearmament.
Merz’s volte-face on spending came as von der Leyen encouraged the EU’s other 26 capitals to do likewise and use the 4-year exemption from fiscal rules for their military budgets.
“A new era is upon us. Europe faces a clear and present danger on a scale that none of us have seen in our adult lifetime,” von der Leyen wrote in a letter to the EU’s 27 leaders on Tuesday.
Von der Leyen also proposed for the commission to raise €150bn that could be disbursed to EU capitals as loans to invest in the arms industry, as well as to redirect other EU funds to the effort.
“Mobilise Europe’s immense resources,” von der Leyen urged the leaders, “to unleash our industrial and productive power and direct it to the goal of security.”
Many countries, including Italy, have been demanding a change to the fiscal rules to increase their flexibility to boost defence spending. If all capitals took advantage, von der Leyen said, it would collectively contribute some €650bn over four years. EU member states spent a total of €324bn on defence last year.
Roderich Kiesewetter, a member of parliament with Merz’s CDU, said that allowing defence spending outside of the fiscal rules was “a signal to Spain, Portugal, to Italy to do even more . . . It’s a very helpful action inside Europe to also motivate those who are even more behind”.