Germany will not face penalties for breaching the European Union’s budgetary rules, as the European Commission announced on Tuesday that its anticipated public deficit can be attributed to increased defense spending. Despite projections indicating that Germany’s public deficit may exceed the mandated three percent threshold in 2025, the EU’s executive branch determined that this shortfall is “fully explained” by the country’s heightened defense expenditures.
According to the established fiscal guidelines, member states should maintain debt levels below 60 percent of national output and ensure that public deficits do not surpass three percent. Earlier this year, Brussels afforded member states a temporary allowance to allocate up to 1.5 percent of their national output to defense expenditures without incurring penalties, which will be effective for a four-year period. Germany is among 16 nations, including Denmark and Poland, that have sought this budgetary exemption.
Historically, Germany has advocated for fiscal discipline within the EU. However, growing security concerns, particularly regarding threats from Russia, as well as competitive pressures from China and the United States, have led Germany to reassess its budgetary priorities. Chancellor Friedrich Merz has recently relaxed stringent debt regulations, launching significant investments in infrastructure and defense to revitalize the eurozone’s leading economic power following two years of recession.
The European Commission forecasts that Germany’s deficit will reach 3.1 percent this year, marking a slight deviation above the EU’s limit yet exempt from punitive measures. In contrast, Finland, which is experiencing a similar financial situation, may soon face an excessive deficit procedure due to its shortfall only being “partly explained” by defense spending increases.
Brussels has already initiated similar procedures for several other EU countries, including Austria, Belgium, France, Hungary, Italy, Malta, Poland, Romania, and Slovakia. This procedure mandates that affected nations collaborate with the EU to formulate a strategy aimed at reinstating compliance with budgetary regulations.
In contrast, France appears to be adhering to its commitments made to the EU to mitigate its high public deficit. However, the Commission noted that the evaluation of France’s situation is marked by “considerable uncertainty.” The French government is under pressure to pass a spending bill by the year’s end to address its mounting deficit and debt, yet ongoing political deadlock has complicated these efforts.
