Approval given for Germany's large-scale expenditure plan in Brussels
Germany has announced a significant shift in its financial strategy, with the aim of rebooting economic growth in Europe's industrial heartland. The country's public debt and deficit are set to increase over the coming years, as outlined in the 2025 budget draft presented by Federal Finance Minister Lars Klingbeil.
The increased spending is a response to pressure from both the EU and the United States, following Russia's full-scale invasion of Ukraine. The deficit to GDP ratio is expected to peak at 3.8% in 2026, exceeding the EU's 3% limit, but will then decrease to 1.9% in 2029.
Notably, Germany's military budget is set to increase from 2.4% in 2025 to 3.5% of GDP by 2029. Remarkably, this increased military spending is effectively exempted from the calculations of Germany's debt-to-GDP ratio.
The seven-year spending plan, which was approved by the cabinet and submitted to the Bundestag for parliamentary approval, includes key measures such as combating undeclared work and VAT fraud, reforming basic unemployment benefits, cutting personnel costs (except for security agencies), halving federal commissioners, reducing funding programs, and cutting administrative expenses.
In a bid to gain extra time to meet the EU's rules, Germany has requested an extension of its spending plan from four to seven years. In return, Berlin has promised to adopt EU recommendations such as reducing red tape and taking in more highly-qualified migrants.
The European Commission has approved Germany's seven-year spending plan, acknowledging the temporary nature of the increased public spending and stating that it does not endanger Germany's fiscal stability. However, the decision has received criticism for potentially ignoring fiscal rules due to Germany's status as the most powerful country in the EU.
The approved plan allows for significant increases in spending on defense and infrastructure in Germany. In November, the EU executive will issue an early assessment on whether member countries are on course to meet their long-term spending commitments.
The Commission has assessed the spending plan of every EU country as part of its annual budgetary process. The debt-to-GDP ratio in Germany will rise from 64 percent in 2025 to 66.5 percent in 2029, and decline thereafter. Despite the criticism, the European Commission has confirmed that it won't open an excessive deficit procedure against Germany.
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