Why Germany can’t afford not to spend billions on defence

For decades, Germany prided itself on fiscal restraint, wielding the Schuldenbremse, or debt brake, as both shield and creed, a safeguard against excess and a symbol of post-war prudence. But in an era of resurgent Russian aggression and global upheaval, that restraint has become a liability. Now in a historic pivot, Germany has shed its self-imposed shackles, embracing power and reshaping Europe’s security order for generations to come.

The Bundestag last week took a step that reverberated through Europe, all the way to the Kremlin. Germany’s debt brake was effectively nullified for military spending. Under this decision, now approved by the upper house of parliament, any defence expenditure exceeding 1 per cent of Germany’s gross domestic product will now bypass the fiscal cap. With Germany’s 2024 gross domestic product projected at €4.3 trillion (US$4.7 trillion), this decision marks nothing less than an epochal turning point.

At the height of the Cold War in 1963, Germany’s defence spending reached a robust 4.9 per cent of GDP, a testament to a nation prepared for the existential threats of the era. Yet that commitment eroded over decades, to 1.9 per cent in 1992 and a mere 1.1 per cent by 2005, a fiscal retreat reflecting a growing complacency. The country failed to meet Nato’s 2 per cent defence target for more than 30 years, until 2024.

Under the stewardship of chancellors Angela Merkel and Olaf Scholz, Germany was the poster child for fiscal conservatism. Yet this caution left the nation woefully unprepared for the multifaceted threats of the 21st century, ranging from hybrid warfare to cyber intrusion.

Even though Scholz’s €100 billion special fund, an extraordinary injection of funds in the wake of Russia’s 2022 invasion of Ukraine, was hailed as Zeitenwende or an epochal shift, it was never more than a stopgap measure at best.

Fortunately, Germany’s incoming chancellor Friedrich Merz has pledged to finally reposition the country. In this context, one needs to understand that we Germans raised in the comforting shadow of the post-Cold War order took for granted three immutable truths: Russia’s cheap energy, China’s boundless market that fuelled our prosperity and an American security guarantee that came nearly free of charge.