EU’s Spring 2025 Verdict: Will Germany’s Deficit Spark a Fiscal Firestorm?

Brussels braces for a high-stakes showdown as Germany's budget shortfall lands on the EU's desk.

Deficit drama reaches boiling point—will Berlin get a pass or face the music?

Behind the scenes: Eurocrats sharpen their pencils while German ministers sweat over spreadsheets. Classic case of 'rules for thee, not for me' in EU fiscal theater.

Commission excludes defence costs from deficit rules

Much of Germany’s additional spending stems from its pledge to strengthen its military and security infrastructure.

Germany has pledged to modernise its armed forces since the war in Ukraine. The country committed €100 billion to a special defence fund in 2022 and has consistently maintained the defence budget as its top priority as geopolitical tensions rise.

The tiny excess in its deficit this year, 0.3 percentage points above the EU’s limit, is entirely related to this defence spending, say officials from the EU.

Under the EU’s reformed fiscal framework, which member states agreed to early in 2024, some forms of public investment, in areas such as defence and climate, can be excluded when calculating budget shortfalls.

Germany’s government has insisted its budget plans do not breach the “spirit” of EU rules, insisting its spending decisions are prudent and needed.

EU to decide on Germany’s deficit in spring 2025

Despite the conciliatory tone, the European Commission has not yet concluded. Dombrovskis said a formal evaluation WOULD be done in the spring of 2025 once full-year budget data becomes available. He added that if everything goes as planned, there would be no need to trigger the excessive deficit procedure.

The excessive deficit procedure (EDP) is a mechanism under which the EU requires countries to take corrective action when they exceed the 3% limit. Failure to adhere nationwide could eventually result in fines and other penalties.

Germany, one of the EU’s economic heavyweights, has long favored fiscal discipline. What’s more, the former German government had a hand in designing the actual rules under which the math provides some flexibility regarding extraordinary defense spending.

This moving of the goalposts illustrates how evolving regional and global dynamics contribute to reshaping European fiscal policy.

To date, at least, Germany has escaped that kind of scrutiny. The moral squeeze is off, but Brussels will continue to peer over its shoulder at its fiscal direction.

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