The German government has reportedly reached an agreement with the European Commission regarding a multi-year financial plan. According to sources cited by the Handelsblatt, the government and the Commission have “successfully established a multi-year path for the maximum permissible growth” of state expenditures for the years 2025 to 2029. The Federal Cabinet is expected to formally approve the plan on Wednesday, following which it will be submitted to the EU Commission.
This agreement would, in principle, align Germany’s planned debt package, earmarked for defense spending and infrastructure development, with existing EU regulations. However, the possibility of a deficit procedure against Germany later this year, when the 2026 budget is presented, has not been definitively ruled out.
The European Commission has consistently emphasized the importance of equitable application of rules for all member states. However, some economists have voiced concerns that the agreement represents a selective interpretation of these regulations. Jeromin Zettelmeyer, head of the Brussels-based think tank Bruegel, criticised the arrangement, suggesting it could have “catastrophic” consequences. Lars Feld echoed this sentiment, warning that the perceived leniency shown to Germany could negatively impact efforts by other member states to stabilize their public finances, potentially delaying debt reduction in countries like France and Italy.
The agreement between the EU Commission and the German government anticipates a nearly doubling of Germany’s potential growth rate, from 0.5 percent to an average of 0.9 percent in the coming years. Furthermore, Germany’s debt-to-GDP ratio is projected to decrease from 2029 onwards, partially due to the non-inclusion of defense spending in calculations, despite the planned expiration of this allowance in 2028. This would see Germany’s debt ratio fall below the 60 percent threshold for the first time in 2036.