Friedrich Merz, Germany’s newly-elected federal chancellor, issued a firm signal on his first visit to This content is for subscribers only. At this pivotal moment for the European Union, this visit comes at a unique time. It wrestles with heated discussions of fiscal policy and military appropriations. Merz’s firm position emerges in light of Germany’s substantial debt levels, which have raised concerns among various member states.
Even before he took office, Merz was advocating for a constitutional amendment. This amendment allows Germany to exclude defense and security expenditures above 1% of its GDP from the country’s stringent constitutional “debt brake.” This legislative change is indicative of an urgent recognition to strengthen military capabilities amid increasing global instability and tensions. On his visit, he used the opportunity to stress the need for Germany to access financial markets in order to increase military spending.
“We’re facing crises and challenges across the world that are becoming more permanent, and that cannot be used as a basis for permanent common European debt,” Merz stated, emphasizing his stance against extending debt practices across different policy areas.
The challenge of debt has particular urgency in the EU. Several of the EU’s member states have already gone beyond the EU’s proposed max 100% debt-to-GDP ratio. Usually the most economically powerful nations in the EU, Germany and France are most frequently at loggerheads over EU budgetary issues. On the flipside, Merz was very clear about the burden that continuous expansionary public spending would put on member states. This wrinkle further complicates the conversations occurring around joint economic development strategies.
European Commission President Ursula von der Leyen recently announced the “Readiness 2030” plan. This, one of the largest peacetime initiatives to rearm the EU, has a €800 billion scope and would bring about EU’s strategic autonomy and deterrence capability. Finland and Denmark have similarly changed their tune, calling for a more flexible approach to EU defence spending. Spain has called for an increase in the EU budget to €2 trillion. To help finance this rapid growth, they intend to use shared debt as a tool to do so.
Yet, not every country is on board with this plan. The Netherlands maintains its long-standing opposition to any form of common debt, while Baltic states, Poland, and Greece have called for grants aimed at financing defence initiatives. The varying views between member states points to a complicated picture, one in which agreement could be difficult given the right conditions.
Merz expressed caution regarding the idea of collective debt, stating, “It cannot become the rule that we go into debt at the EU level.” He understood that in extraordinary circumstances—such as during the COVID-19 pandemic—flexible, remote, or temporary measures were necessary. He argued that these episodes shouldn’t set a new standard for future fiscal policy.
It makes me wonder how much refinancing alone would allow. That’s true both for the size of the debt, as well as the level of interest rates. We just can’t afford to get into infinite spirals of debt,” he continued, sounding something like the fiscal hawk I used to know.
“It’s going to be a difficult discussion. There will be differences of opinion,” Merz noted, indicating that negotiations among member states will require careful navigation.
As Germany continues to grapple with its economic responsibilities within the EU framework, Merz’s approach may shape future discussions on collective defence spending and fiscal policy. The EU’s recovery from the pandemic economic debts will lead to extremely large repayment requirements. Analysts project these repayments will amount to between €13 billion and €15 billion annually, continuing until 2058.
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