Germany’s Defence Spending Surge and Debt Brake Reform
Executive Summary
Germany is undertaking a radical transformation of its fiscal and strategic posture, marked by a projected increase in core defence spending from €95 billion in 2025 to €162 billion by 2029—equivalent to 3.5% of GDP. This acceleration outpaces comparable plans in France and the UK, positioning Germany as the new leader among European NATO members in meeting the proposed alliance-wide target of 5% (3.5% core military, 1.5% cyber and infrastructure). Central to this shift is a constitutional reform that allows defence expenditures exceeding 1% of GDP to be financed outside the traditional debt brake, enabling up to €1 trillion in borrowing over the next decade. This represents a deliberate break with Germany’s previous fiscal orthodoxy, aimed at rapidly addressing security gaps exposed by Russia’s war in Ukraine and growing uncertainty around U.S. commitments to European defence. Approximately €8.5 billion annually is also earmarked for military aid to Ukraine through 2029.
The fiscal consequences are significant. Germany’s federal deficit is expected to rise from €82 billion in 2025 to €126 billion by 2029, with interest payments on public debt projected to double over the same period. Despite this expansion, Germany’s relatively low debt-to-GDP ratio and strong credit rating provide fiscal space for manoeuvre, distinguishing it from peers like France and Italy. The government has also created a €500 billion off-budget fund for infrastructure and climate investment, further bypassing the constraints of the Schuldenbremse. While debt sustainability remains a concern, Berlin views the new framework as a necessary adjustment to geopolitical and technological realities. This pivot reflects a structural commitment to long-term strategic deterrence, signalling the end of Germany’s decades-long reliance on U.S. military guarantees and the beginning of a more autonomous and assertive European defence architecture.