Germany Plans €800 Bln Borrowing Spree to Fund Defence Overhaul

Germany is preparing to borrow more than €800 billion by 2030 in a historic shift away from decades of fiscal restraint, as Berlin dramatically increases defense spending in response to mounting security challenges across Europe, according to the Financial Times.

Officials at Germany's Finance Ministry said Chancellor Friedrich Merz's government plans to raise more than €200 billion from financial markets next year alone, representing a 12.5% increase on this year's borrowing. Between 2027 and 2030, total borrowing is expected to reach approximately €838 billion.

The Financial Times described the strategy as a major departure from Germany's long-standing commitment to balanced budgets and debt discipline, marking a significant policy reversal for Merz's conservative government.

Most of the additional borrowing will be directed towards expanding Germany's defense budget, which is projected to rise from €109 billion next year to €183.6 billion by 2030. Berlin also plans to allocate €11.6 billion in military assistance to Ukraine next year.

The increased spending reflects growing concerns over Russia's security threat, alongside expectations that US President Donald Trump could reduce Washington's military commitment to Europe, prompting European nations to strengthen their own defense capabilities.

Following the Christian Democratic Union's election victory last year, Germany amended its constitutional "debt brake" rules to exempt defense spending, effectively allowing unlimited borrowing for military purposes.

Alongside higher defense expenditure, the Merz-led coalition with the Social Democratic Party has established a €500 billion infrastructure fund to modernise bridges, roads, railways, hospitals, schools and energy networks across Germany.

Europe's largest economy, which retains a triple-A credit rating, also plans to raise around €55 billion in 2027 to finance infrastructure investment.

The borrowing plans have sparked political debate, including within the Christian Democratic Union, which has traditionally championed the Schwarze Null, or "black zero", policy of maintaining a balanced federal budget.

Finance Minister Lars Klingbeil defended the strategy, arguing that Germany could not confront Russian President Vladimir Putin while adhering to a strict zero-deficit policy.

Government officials expect Germany's defense spending to reach 2.8% of gross domestic product this year, before rising to NATO's 3.5% target from 2029.

Despite the government's economic stimulus measures helping offset the impact of higher US tariffs and rising energy costs linked to regional geopolitical tensions, Germany's economy remains sluggish after a prolonged period of weak growth.

Critics have also raised concerns over the country's rapidly increasing debt-servicing costs. Interest payments are forecast to almost double from €42 billion next year to €81 billion by 2030.

The Federation of German Industries (BDI) described the scale of planned borrowing as "concerning", warning that interest costs continue to rise sharply. Meanwhile, the VDMA engineering industry association said repeated record budgets had stretched Germany's fiscal framework to its limits due to soaring debt levels.