Increased Defense Spending Pushes Germany and Other EU Members Over Deficit Limits

On the 25th, the European Commission stated that Germany's deficit has exceeded the limit due to increased defense spending but has not initiated an excessive deficit procedure against Germany. The Commission previously projected that rising defense spending would lead to higher deficits in 2026 for several EU member states, including Germany.

In a statement issued that day, the Commission said that after assessing all member states' compliance with the EU's fiscal framework, it found that the EU faces several strategic vulnerabilities and persistent structural challenges. These include low productivity, demographic pressures, and growing public financing needs related to defense, decarbonization, and the digital economy transition. The Commission urged EU member states to maintain sound public finances and enhance competitiveness.

The latest assessment shows that Finland's budget deficit for 2024 is 4.4% of GDP, projected to rise to 4.5% in 2025 and reach 4.0% in 2026. The Commission believes it is necessary to initiate an excessive deficit procedure for Finland. Additionally, Germany's deficit is projected to reach 3.1% of GDP in 2025, 4.0% in 2026, and 3.8% in 2027. According to the EU's Stability and Growth Pact, member states' annual budget deficits should not exceed 3% of GDP, and public debt should not exceed 60% of GDP.

The Commission stated that the overall fiscal stance of eurozone countries should remain neutral next year and recommended reprioritizing budgets to meet strategic investment needs.

The Commission previously projected that the eurozone's budget deficit would slightly increase from 3.1% of GDP in 2024 to 3.2% this year, further rising to 3.3% in 2026 and 3.4% in 2027.