Berlin’s Unilateral Relaxation of Stability Pact: Long-term Exemption for Defense Spending

In the coming days, attention should be focused on Berlin rather than Brussels to glimpse the likely partial content of the announced application of the national escape clause using defense spending as a vehicle. This is because in Berlin, on Thursday, March 13, discussions will begin in the plenary session of the outgoing Federal Parliament regarding the constitutional amendment concerning the ‘debt brake’ towards its relaxation or, otherwise, increasing state borrowing as per the political agreement between the two partners of the incoming government (CDU-SPD). The related vote is scheduled for Tuesday, March 18, and if a two-thirds majority is achieved (including the Greens), it will institutionalize—at a constitutional level—a deviation by an EU member country from the Stability Pact, which came into effect just three months prior in January 2025. This move precedes any final EU-wide agreement on the exact implementation of the national escape clause, first green-lit at the extraordinary EU summit on March 6. The regular EU Summit is scheduled for March 20-21, just two days after the German parliamentary vote on the constitutional debt brake review. Essentially, the routine EU Summit could commence with a legislatively-bound decision for Germany’s debt brake relaxation, aimed at increasing defense expenditures by €400 billion over the next five years and infrastructure spending by €500 billion over the next decade. This signifies that the largest EU economy plans to deviate from the Stability Pact for up to ten years before the EU decides on such possibilities. Furthermore, as departing Chancellor Olaf Scholz noted post the March 6 emergency summit, a final European decision on the framework for applying the national escape clause may take time, potentially until June when the next Euro-Summit is planned. The CDU-SPD political agreement directly contradicts the Stability Pact’s timeframe for the escape clause, proposing long-term exemptions rather than annual renewals. Germany aims to set a precedent for Europe, suggesting a unified approach lasting up to a decade with partial exemptions for defense spending, marking a significant shift in fiscal policy.