Germany's massive spending spree: How will the EU react?

Time of India

14-05-2025

Germany's new finance minister,
, arrived in Brussels on Monday with a bold message: Berlin is ready to spend big.
With plans to invest €1 trillion ($1.1 trillion) in defence and infrastructure over the next decade, the country is casting off its long-standing reputation for fiscal restraint.
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But as EU capitals digest the scope of the plan, many wonder whether Germany is still playing by the very rules it once insisted others must follow.
Klingbeil, in office just a week, struck a confident tone at his first Eurogroup meeting with eurozone finance ministers. He laid out Berlin's plans to boost growth by cutting red tape, lowering energy costs and addressing labour shortages. "All of this will lead to more growth, and that's also positive for Europe," he said.
Germany's pivot began in January, when the Bundestag suspended the country's constitutional debt brake, a cornerstone of German economic orthodoxy for over a decade. Backed by a broad political majority, the move freed Berlin to bypass strict borrowing limits. In March, parliament took the next step, approving plans to raise €1 trillion in new debt.
Testing the limits of EU fiscal rules
The scale of the plan now puts Germany on a collision course with the EU's fiscal framework.
"This sets a dangerous precedent," warned Armin Steinbach, a fellow at the Bruegel think tank and professor at HEC Paris Business School.
Under the
, member states are expected to keep deficits below 3% of gross domestic product (GDP) and debt below 60%. The rules were softened during the COVID-19 pandemic and again after Russia's invasion of Ukraine, with Brussels allowing more fiscal flexibility, especially for defense.
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In March, the Commission revised the rules and activated a so-called
to give member states temporary leeway, particularly for security spending. Germany argues its plans fall within that scope.
"I assume the rules we've changed in Europe apply. They clearly say there is more flexibility now," Klingbeil told reporters, stressing that reforms and higher growth potential would ultimately support European stability.
Brussels under pressure
But critics aren't convinced. While the new rules offer more flexibility for defence, Germany's package also includes sweeping investments in infrastructure, energy and digitalization, areas not explicitly covered by the revised rules. "This goes well beyond what the rules allow," said Steinbach.
If the Commission signs off on Berlin's plan, it could trigger a wave of political backlash.
"Special treatment for Germany would undermine the EU's no-discrimination principle," Steinbach warned.
Other countries with high debt levels, like Italy or France, could demand similar exceptions, potentially weakening fiscal discipline across the bloc, leading to an economic crisis, he added.
A tough dilemma for Europe
But curtailing Germany's spending plans is also not an easy option, as they come at a critical time for the EU.
With geopolitical tensions rising and economic growth stagnating, many here in Brussels are hoping for economic momentum starting from Berlin.
Despite being in recession for three years, "Germany remains the most important European country, with the largest economy and enormous potential," Karel Lannoo of the Brussels-based Center for European Policy Studies (CEPS) told DW.
The question, however, is whether Germany's spending will have a meaningful ripple effect in other countries, as Klingbeil announced during his visit.
Steinbach is sceptical: "The spillovers are there, but their magnitude is unclear."
Not a restart, but a reset
Klingbeil, for his part, insists this is no rupture with Europe's past. "We don't need a restart in European cooperation, but we do want to take it to the next level," he said.
Steinbach agrees that reform is needed, but urges policymakers not to sidestep the system. "The current rules don't reflect the new geopolitical reality, especially with rising defence needs and the return of Donald Trump," he said.
Rather than abandoning the framework, he calls for a targeted update: Slightly more room for national investment, paired with EU-level borrowing to fund collective defence.
But even under optimistic timelines, those changes wouldn't kick in before late next year.
In the meantime, the Commission faces a critical choice. Allow Germany to push the fiscal boundaries now, or risk stifling investment when Europe arguably needs it most.
A decision is expected by summer, but one thing is already apparent: Germany's new fiscal path is reshaping Europe's economic debate, and testing the limits of the rules it helped write.