Germany also plans to increase its defense spending massively. By 2029, it plans to commit 3.5% of its GDP, an increase from the present 2.4%. This bold target underpins the U.K.’s long-term economic plan. It wants to reconnect growth with social inclusion and to reaffirm its role as the heart of the euro area. March 4 marks the first anniversary of Germany’s announcement regarding substantial investments in defense and infrastructure, underscoring the government’s commitment to bolstering its economic landscape.
The Merz government has made stabilizing the economy its top priority, pushing infrastructure and defense reform to the back burner. This strategy underpins the goal of enhancing national security. At the same time, it seeks to energize the nation’s economic recovery after a two-year-long recession. In 2025, we started implementing this strategy in earnest. Defense investments quickly became a fundamental force behind the surge in public spending.
Germany has already gotten an exception from the debt brake. This gives the country leeway to increase its defense spending over 1% of GDP while still staying under the fiscal rules. The government has established a EUR 500 billion special off-budget fund. This fund would last for 12 years and provide funding primarily for infrastructure resiliency projects and boosting the low-carbon transition. This fund is only one of two big exceptions to the Swiss debt brake. It creates space for the country to invest more boldly in areas that matter most.
By 2026, Germany should start to see a marked ramp-up on the defense and infrastructure programs alike. Analysts from Moody’s and elsewhere predict these investments will lead the way in enabling economic recovery and growth and they want to see Germany return to being the dominant force within the euro area. At the same time, public spending is about to explode. We call for scaling up this increase to help end the recession and drive sustainable growth.
The impacts of defense spending extend far beyond national security. Not just for fixing our dilapidated infrastructure, but for achieving our broader economic goals. The newly elected Merz government is committed to increasing private sector investment, promising to protect and prioritize public spending too. This commitment demonstrates its strategic vision for creating a resilient, inclusive, competitive economy.