European Union, tax shift in Germany

His intention is to present the fiscal stimulus plan to the Lower House of the Bundestag before the new one meets Parliament to prevent far-right and far-left parties from achieving a sufficient minority in Parliament to block it. According to the preliminary details of the agreement, defense spending exceeding 1% of gross domestic product will not be counted toward the public debt curb, currently limited to 0,35% of GDP.

Thus, with a GDP of around €4,3 trillion in 2024, 1% would be equivalent to around €43.000 billion, and all defense spending above that figure would be exempt from the debt brake calculation.

This rule will allow Germany to increase its defense budget (currently around €52.000 billion), until it reached NATO's target of 2% of GDP. Berlin only met that target in 2024, but only thanks to a special fund created after the Russian invasion of Ukraine which will soon be exhausted. The German push has been very well received by the rest of the members of the European bloc. In fact, there is a growing consensus among member states to explore changes to the so-called Stability and Growth Pact, which limits public debt to 60% of GDP and the deficit to 3% of GDP.

For decades, European policy has been shaped by Germany's insistence on controlling public debt, both at home and in other Member States. But the return of Trump to Casa Blanca, and the withdrawal of the United States from Europe, has caused a drastic change in Berlin.

Source: CESCE