A new study from the Düsseldorf Institute for Macroeconomics and Business Cycle Research (IMK) is issuing a stark warning against permanently exempting defense spending from Germany’s enshrined debt brake. The research, reported by the Süddeutsche Zeitung, suggests a continued reliance on borrowing to fund military expenditures could push the nation’s debt-to-GDP ratio to nearly 100% by 2050, a significant escalation from the current level of 65%.
The report’s significance is amplified by the IMK’s history of advocating for a considerably more flexible interpretation of the constitutional debt rule. The current compromise, achieved after last year’s federal election, is now being characterized by the institute as counterproductive.
“Economically, the debt brake reform of Spring 2025 is inverted” stated IMK director Sebastian Dullien. “It should have prioritized borrowing for investments, creating room for defense spending, but instead, it has enshrined limited scope for investment and unlimited borrowing for military expenditures.
The recent legislative changes allow defense spending, aid to states like Ukraine facing alleged violations of international law and disaster relief efforts exceeding 1% of GDP to be financed through borrowing without restriction. This move was ostensibly driven by heightened geopolitical tensions, including Russia’s aggressive foreign policy and the United States’ threat to curtail European military support if allies fail to significantly increase their defense budgets.
However, the IMK study argues that defense spending largely lacks an investment character and generates limited positive impacts on long-term economic growth. Consequently, it recommends shifting away from reliance on new debt and increasingly funding these expenses through taxation. The institute proposes a “one-time, earmarked special levy on very large assets” as a potential revenue source. The study emphasizes that long-term debt financing should be reserved solely for additional public investments.
The report contrasts the problematic defense spending exemption with the newly established Special Fund for Infrastructure and Climate Neutrality (SVIK), a credit-funded initiative of €500 billion. Designed to modernize rail lines, bridges, roads, digital infrastructure and energy networks over twelve years, the SVIK is projected to boost Germany’s economic growth by 1.4% by the mid-2040s, with its debt impact limited to an 11 percentage point increase that is expected to rapidly return to current levels when fully utilized. This comparison highlights a core criticism: while the infrastructure fund promotes future-oriented growth, unrestricted borrowing for defense may exacerbate long-term economic vulnerabilities and divert resources from crucial investment areas.