Chalk up a likely victory for Trump on German defense spending. 
Germany Loosens Fiscal Chains to Transform European Defense
Trump demanded Germany increase its defense spending. That is the likely outcome but it’s not necessarily guaranteed because of a time window and politics.
Bloomberg reports Germany Loosens Fiscal Chains to Transform European Defense
Chancellor-in-waiting Friedrich Merz said on Tuesday night that Germany would amend the constitution to exempt defense and security outlays from limits on fiscal spending and do “whatever it takes” to defend the country. He said that with the backing of his likely coalition partners he is also planning a €500 billion ($528 billion) infrastructure fund to invest in priorities such as transportation, energy grids and housing over 10 years.
“Europe needs to strengthen defense,” said Merz, whose CDU/CSU alliance finished first in a federal election just over a week ago. “The necessary decisions, especially with regard to the federal budget, can no longer be postponed after the recent choices of the American government.”
The euro surged to $1.0644, the highest since Nov. 13, and is on course for its largest three-day gain since late 2022 as investors bet the increased spending by Germany and others will boost the European economy. Yields on 10-year bunds surged 23 basis points as trading began, the biggest intraday move since June 2022. The benchmark securities now yield 2.73%.
The EU responded to Trump’s aid halt by proposing €150 billion in loans to boost defense spending. After decades of underinvestment, European Commission President Ursula von der Leyen said that the EU also plans to activate a mechanism that would allow countries to use their national budgets to spend an additional €650 billion on defense over four years without triggering budgetary penalties.
Not a Done Deal
The German reaction was in response to Trump’s spat with Zelensky and shutdown of aid to Ukraine.
However, this is just a proposal. It takes two-thirds of the German parliament to agree. Moreover, the incoming government is highly unlikely to agree.
AfD and the far left have a blocking minority.
But there is a small window of opportunity to recall the outgoing parliament to get this done.
Race to Win Support
Reuters reports Germany’s Merz Races to Win Support for Major Financial Package.
After three years of attacking what he called the outgoing government’s profligacy from opposition, Germany’s likely next leader Friedrich Merz is now trying to use the narrow window before new legislators officially take up their seats to pass the massive borrowing package.
The about-turn is a consequence of the turmoil caused by the return of Donald Trumpto the White House, bringing with it a realisation that Europe can no longer rely on the United States to guarantee its security in the face of a hostile Russia.
Merz’s conservatives and the Social Democrats (SPD), who are in negotiations to form a coalition following the election, will put their proposals to the German parliament next week, with a vote possible on March 17.
But the Greens party, whose support is key to getting the reform through the outgoing parliament, refused to pledge support, questioning why climate-friendly policies had not been included.
The far-right Alternative for Germany (AfD) joined the radical Left party in threatening legal action. Together, the two parties would have enough votes to block the reform once the new legislators are seated.
Germany’s move also throws down the gauntlet to France, where President Emmanuel Macron wants to bolster defence spending but is struggling to tame an unruly budget deficit.
Merz said his CDU/CSU conservative bloc and the SPD would submit a motion to parliament next week to amend the constitution so defence expenditure above 1% of economic output is exempted from debt brake rules.
A commission of experts will separately develop a proposal for modernizing the debt brake to boost investments on a permanent basis.
According to a poll by INSA, 49% of Germans support loosening the debt brake while only 28% are against. But changing the debt rules and creating a special fund require a two-thirds majority in parliament.
Greens Say “Me To”
As is always the case, when one party demands more spending, everyone else does too.
I was aware of this proposal for a week but thought it might fail because (silly me, I believed Merz when he said he would not amend the constitution for massive spending).
The German Bazooka
The Guardian discusses ‘A Risky Bet’: Friedrich Merz Criticized Over Plan to Lift Germany’s Debt Rules.
Merz’s efforts to squeeze the plans through the existing parliament, where the conservatives and SPD currently have the necessary two-thirds majority together with the Greens – but which they will lose once the new parliament is in place at the end of March – have been described as a race against time.
He has been confronted with myriad accusations from opposition parties, everything from committing voter fraud to endangering the democratic process by rushing his plans through parliament.
The Greens, not part of negotiations for a new government but keen supporters of Ukraine as well as for a spending increase on Germany’s ailing infrastructure, have indicated their support. However, their joint parliamentary leader Britta Haßelmann accused Merz of breaking his promise to not take on more debt.
“You promised the citizens of this country that there would be no more debt,” she said, lamenting also Merz’s lack of commitment to fiscal reform. “From one day to the next you’ve broken this election promise.”
Die Linke, which has 64 seats in the new parliament, questioned the legality of the financial plans, and accused Merz of circumnavigating the distribution of seats in the new parliament. “We question whether the decision on several hundreds of billions of euros by an old parliament that has just been voted out is at all constitutional,” it said in a statement.
The pro-business FDP, which will have no seats in the new parliament, but whose opposition to the outgoing government’s wish to boost spending by taking on more debt led to the administration’s collapse last November, accused Merz of participating in a “debt orgy”. The party’s parliamentary group leader, Christian Dürr, criticised Merz for “already shying away from real reforms before he’s even chancellor”.
Broken Promises? Mercy!
“From one day to the next you’ve broken this election promise,” holler the Greens.
Mercy, how shocking! Well, this is easily fixed.
Q: Really? How So?
A: Please reflect on how “me too” works. Just toss them a bone.
What About France?
Unlike Germany, France and Italy are under EU debt and deficit proceedings.
That makes it harder.
To understand how France differs from Germany, please consider The Political Crisis in France Is About to Get Much Worse
The entire eurozone is in shambles, and Trump’s demands [on 5 percent defense spending and trade policy] will accelerate the crisis. One seriously must wonder if that is his real goal.
Me Too, US Style
Fiscal conservatives make deal after deal after deal with the progressives.
On March 1, I commented Republicans Cave In on Spending, as Expected, Now that Trump Agrees
Trump seeks a “Clean Continuing Resolution”. The spineless House cheers.
Continuing Resolution Flashbacks
November 11, 2023: No Surprise, House Speaker Johnson Proposes Same Plan as McCarthy
There are likely big surprises elsewhere, but there is no surprise in this corner regarding Johnson’s plans to keep the government running.
“It’s…100% clean. And I 100% oppose,” said Rep. Chip Roy (R., Texas) on social media.
December 19, 2024: House Rejects Trump-Supported Stopgap Funding Plan, 37 Republicans Say No
37 Republicans say no to Trump.
Yesterday, Speaker Mike Johnson agreed to pass a 1500+ page continuing resolution budget monstrosity.
The bill died after Elon Musk and president-elect Trump trashed it.
Johnson then slimmed the bill down to 116 pages. That bill had Trump’s support.
Not mine. But I don’t get a vote. Regardless, I was reasonably confident the revised bill would blow up, and it did.
Once Johnson stripped 1300 pages of Democrat goodies the bill was doomed in the Senate and I thought the House as well.
Sure enough, the vote was 234 against to 174 for. That is nowhere close to a majority even if you throw in 21 non-voting and 1 who voted present.
Trump Threatens to Take Down Chip Roy
Also on December 19, 2024, but ahead of the vote, I reported Trump Threatens to Take Down Chip Roy, One of the Only True Fiscal Conservatives
Massive Republican infighting between Trump and fiscal conservatives is underway.
Trump was annoyed because Chip Roy, a member of the Freedom Caucus blasted the Trump-approved 116-page bill.
Well now, Chip Roy is on board. Fancy that.
The Hard-Line Freedom Caucus
The allegedly hard-line Freedom Caucus led by Chip Roy is now OK with clean continuing resolutions.
I can guarantee the result in advance: Trump will propose budget-busting spending items that DOGE won’t come close to covering.
Republicans will dramatically increase the deficit and will use gimmicks and ridiculous assumptions to deny that fact.
But that’s OK now that Trump wants them.
Trump Waives the White Flag Already
To buy votes for tax cuts, Trump is waiving the white flag of surrender already. He supports reinstallation of state and local tax deductions that New York wants.
It won’t stop there.
Lord only knows what an iron dome defense shield will cost, but Trump asked for that last night when he addressed Congress.
The only way Democrats will go along with more defense spending is the never fail “me too” strategy.
If you seriously believe DOGE will do a damn thing about this, look in a mirror to see someone who is delusional.
Nobody can outdo the US “me too”
The best we can hope for is no deal at all. I give that about a 2 percent chance.
Meanwhile, we can thank Trump for getting Germany to wreck its finances too.
And thus Trump kicked off a refreshing round of Global MeTooIsmtm GMTItm even in hard sought after Germany.
That’s a Global MeTooIsmtm job well done.
Related Posts
February 28, 2025: Trump-Zelensky Meeting Implodes, Trump Says “Come Back When You Want Peace”
Put a minerals’ deal with Ukraine temporarily on hold, but Zelensky “has no cards”.
Note to deal signers: Work out an agreement in advance and short statements in advance. Don’t make stupid comments about continuing war in a peace deal, and don’t try to get more at the signing than you agreed to.
March 4, 2025: Zelensky Seeks Deal One Day After Trump Cancels All Aid to Ukraine
Yesterday, Trump paused all military aid to Ukraine after a disastrous meeting with Zelensky last Friday. Now what?
EU solidarity was meaningless. And now Rubio demands an apology. It should not have been this way.
March 5, 2025: Ukraine’s Rare Earth Mineral Reserve Is More Hype Than Reality
Ponder the implications of the headline and note the obvious bluffs.
The powerful German economic engine was based on high net exports to fund domestic spending. The engine ran on cheap energy and good technology. The energy is no longer cheap, and other countries have caught up in technology. As a result, Germany’s economy is in recession, and the rest of the EU isn’t doing much better.
The EU needs an expensive military-industrial complex and standing army like a hole in the head. With declining net exports, what will fund an increase in debt to fund more military production? Does Germany seriously think it can out-produce Russia in tanks, shells, aircraft, etc.? Even if it could, that will take decades.
All of this talk about the EU continuing to support Ukraine’s failed bid to join NATO and the EU is pure insanity. Surely the business community and the surge of the anti-Ukraine war right must be causing Europe’s leaders to wake up? Sadly, no. Macron wants to lead a coalition of the willing to keep the fight going. More insanity.
The only explanation for this craziness is that the EU really thinks Putin will keep marching West to Berlin.
Wouldn’t this be an even more potent argument for negotiating an end to this war NOW? Russia has a history of keeping its agreements, unlike the U.S. Trump is offering a lifeline to Europe in the form of a deal. Why won’t the EU take it?
Of course that leaves Ukraine to Russia’s mercies. That’s the end game anyway!
Some of my favorite quotations come into play on this topic…
“When things get serious, you have to lie” (Jean-Claude Junker)
“You can’t bullsh*t math” (anonymous source)
You say that like the Republicans did anything but blow out the budget and make excuses before Trump. It’s just the same old, same old to me, I’d rather have whip lash and breaking things than what we’ve had for decades, and if we can’t do that, we should probably just start smashing up these corrupt institutions in a physical way.
I don’t know. That’s just my sense. But then, I never believed Merz, because what sort of person trusts an Establishment politician and a globalist? He’s not gonna fix migration either, and that was always the case, no matter what words were thrown around to repress the AfD vote.
You know what will be truly funny? When Germany builds their new military and it ends up deposing the current regime in due time.
I am in favor of reduced military spending and have sad so repeatedly – I also repeatedly criticize the US budget.
You don’t read me much do you?
With all this imaginary money/spending commitments sloshing around, it makes you wonder what money is anyway? In the end, these governments are asking people to do work in exchange for credit notes whos value those same governments are busy undermining. Admittedly, most people are oblivious to such details, but a lot of people feel like something is off, and you don’t get the sense of there being the same level of motivation to do these tasks the elites and governments want doing; similarly the nations and institutions people are being asked to fight for are being systematically undermined. Looking further downstream of all this, you don’t see many reasons for any of these things to actually materialise. Of course there are the solid 30% of sheep who go along with anything the government says or demands, but that middle third doesn’t feel quite as committed to the current thing narratives. Before the GFC and smartphones, the goal was simple – build wealth, retire; and now? not so clear.
“A commission of experts will separately develop a proposal for modernizing the debt brake to boost investments on a permanent basis.”
The brake pad is grabbing too hard. Time to call Midas and modernize it so the brake slips, allowing more debt on a permanent basis. It is more modern than reducing the amount of gold or silver in the coins.
Let’s assume Mish is 100% correct. Now, what is the likely outcome beyond the obvious implications such as continued deficit and debt growth, continued waste and fraud, a general betrayal of people who supported Trump, a reversal at the midterms. impeachments beginning in 2026-7…?
The US had a chance, and blew it?
There is one way in which DOGE can seriously impact deficit spending, which is with respect to politics. To the extent audits take place and there are efforts toward disclosure of fraud and corruption – a public hanging would be too much to ask as that implies accountability and responsibility – it might shift politics toward spending cuts as the new form of political virtue signaling. That’s obviously going upstream against the power this money represents. But stranger things have happened…particularly recently. 😎
A well armed, potentially hostile Germany – when has that ever been a problem for the US?
The USA (United States of Amnesia) never fails to amaze.
Put it into context, this increase is submitted by a lame duck government in its last days in power. It no longer has a majority. In such cases, the sitting government is a caretaker that should not take major initiatives.
But who cares about law anymore.
“Chalk up a likely victory for Trump on German defense spending.”
Just add it to the growing list, Mish!
“Trump will propose budget-busting spending items that DOGE won’t come close to covering.”
I can’t say that I disagree.
Great reporting.
All I can say is “ME TOO”!!!
😀 😀
The German Greens are in support of war so long as Shell Casings and dead bodies are converted to things that are good for the Environment.
Greens always want fewer humans.
There was a reason that recent decades obscured why my grandparents left Europe: unending wars. There is a reason that recent decades demonstrated why I left the US: unending wars.
Now, where to?
Why, where countries haven’t warred against their neighbors for centuries.
You moved off planet?
Not sure there is any place on Earth where countries haven’t warred for centuries.
I wouldn’t expect less ignorance about geography and history from a Usonian.
Germany, like the United States has a bloated budget above income because like the U.S. it decided that socialism was the way to go and spending beyond your means was justified. We have enough of our budget that has been wasted protecting Western Europe over the last 80 years and for it we now have an EU that is worthless on several levels and economically is no longer what it once was. I am more than happy for them to start to feel our pain after 80 years.
ECB up this morning they will be giving good insight into how serious Europe is in increasing defense spending.
Am leaning towards a Dovish cut as economy in taters. Europe needs revenue to fund both Social and Defense in the new age whereby US is pulling back from being consumer of last resort.
With Globalized consumption hitting skids Export reliant economies such as Europe need increase money in pockets of it’s people to fuel domestic GDP growth. This to keep at minimum a Tax basis to Tax.
If they do not, Trumps Golden passport will look mighty appealing to European Business folk looking for a better place to earn some money.
From ECB statement
” The economy faces continued challenges and staff have have again marked down their growth projections-to 0.9% for 2025. 1.2% for 2026 and 1.3% for 2027. The downward revisions for 2025 and 2026 reflect lower exports and ongoing weakness in investment, in part originating from high trade policy uncertainty as well as broader policy uncertainty. Rising real incomes and the gradually fading effects of past rate hikes remain the key drivers underpinning the expected pick-up in demand over time.”
Now to see if the market views this as a call to Doves for domestic spending gearing up.
US Trade balance Jan -131.40 B
Trump has to press forward with Tariffs to balance out trade.
Or trade partners can start restructure of how their economies function and become less reliant on a tapped out US consumer.
Peace dividend from Tariff imposition causing economic restructuring. Which in turn lessens need for Wars to generate spending appears to be on verge of implementation.
Better this as outcome then WW3.
Tramps golden passport is about as appealing as a root canal while undergoing haemorrhoid laser treatment without anaesthetic.
You have the option of not taking him up on that.
Unlike Europe where people get told what to do and what to like.
The voice of experience.
Germany will no doubt increase their defense spending, and so will most of Europe and elsewhere around the Globe. It’s not really a choice for most Countries at this point. The World is getting smaller by the day, and people are becoming much more transient as a result. This involves immigration reform for most Countries, as they simply can’t afford the infiltration, of which it is, if a law exist as such.
Many Countries got all wrapped up in the “Hopeful Riches” of EV’s & Solar / Wind and all “Green Initiatives” for that matter. Now as they awaken to their Country’s being overwhelmed by people looking for some of those “Riches” they have spent the Trillions, but there were “No Riches” as we (Citizens Tax Dollars) got taken to the cleaners as the Citizens being expected, and in some cases mandated, to (Pay Up) do so!!! Sure the Players got Wealthy beyond their dreams, and drive SUV’s, Have Yachts, Boats, Planes, Homes Etc. All heated with Oil, NG, or other forms of mined (Not Green) goodies…
After Trumps spat with Zelensky, most of Europe is scared as heck, that the U.S. will pull out of “Everything” and leave a defenseless Europe, much like Ukraine is, to support Ukraine against Russia. Like they’re capable of that… NOT!!! IF the U.S. Pulls completely out of Ukraine, then Europe (EU) will be left as their only Savior AND Neighbor ironically… we shall see, but say Goodbye to “Green,DEI, Open Borders Initiatives STAT!!!
Open borders intentionally suppresses wages for the locals.
Europe needs consumers with money to spend not illegals costing a lot to support.
Yes, but back when it started, and was controlled to a relative degree, so it was OK. Now, as you point out, they are loaded up to the gills, and no longer have the money OR resources available to take care of them all anymore. Hey, guess what? That cost a whole lot more money…
The same problem everywhere – the ladder-pulling boomer generation has too many of the assets and is not releasing them to cycle through younger generations; instead they attack the spending power of younger generations using mass immigration, and store up a world of hurt for the future. Of course the boomers will pull out their violin at the thought of putting the interests of their own people first, they are the Selfish Generation.
– The same problem everywhere – the ladder-pulling boomer generation has too many of the assets and is not releasing them to cycle through younger generations.
> No it’s not at all actually… Boomers are passing their wealth and assets onto their grandchildren etc. I would know, as I am doing so, and many, many others are doing so. It’s the ones that have nothing to give, and those expecting something that’s truly the issue at hand here…
– “it’s not really a choice”?! they haven’t got any money… how is it a choice at all?!
> There’s always a choice. It’s what you’re willing to give up to have it is the issue. Stop drinking and going out to eat for example, and most could afford there bills much easier. Add stop smoking, and accessories (Hair ext. tattoos, gym membership, etc. most can be done at home or very easily can go without. Have people move in with you. Pass your clothing on down to them. Choices, ALL choices…
“it’s not really a choice”?! they haven’t got any money… how is it a choice at all?!
“goads”? sounds like blackmail.
It’s a simple choice. Pay for what you use or do it yourself.
Surely the blackmail is by Europe to the US? Instead of paying their own way they are trying to compel a foreign power to pay it for them?! The US was created by people fleeing Europe to avoid having to pay for the lifestyle and ambition of European elites. Where’s the blackmail?!
MAGA Wants to End Capitalism as We Know ItIts goal is to eject the managerial corporation from its central role in the heart of the US economy. https://archive.ph/hj8Qn#selection-1395.0-1401.101
lol, expecting people to pay for what they use = end of capitalism. More like the end of free riding.
We have already fallen. We just don’t want to believe it. Sad to say it started in the late 60s and has been a slow demolition till covid.
Germany spends about 1.5% of GDP on defense, but the requirement for NATO countries is to spend a minimum of 2% of GDP on defense.
In 2024, Germany spent 2,12% of GDP on defense. And soon it will spend much more. Let’s at least get a few facts right.
Spending is a stupid metric.
True – each sovereign independent country of grown ups should conduct a risk assessment of their needs and budget for it accordingly, like any set of adults, rather than go begging abroad for handouts, using emotional blackmail.
…and as with any insurance policy, the policy holders (the other NATO countries) shouldn’t deliberately indulge in risky behaviours (like trying to provoke nuclear war), and expect the insurance provider (the USA) not to take a dim view.
NATO is a subscription insurance policy – pay your premiums or accept you can’t submit a claim.
“One seriously must wonder if that is his real goal.”
Perhaps just nudging the EU a little closer to the edge.
Germany does not need defense. Germany is more communist fascist than Russia. That is why USA is leaving NATO.
I realize that we live in 2025 Clown World but words still have some residual meaning and “communist fascist” is moronic, ignorant, meaningless bullshit.
You may call Germany Communist and I would vaguely agree with you (they are orwellian suicidal globalists) and you may call Russia Fascist and I may vaguely agree with you (in Russia “God, Fatherland, Family”, the core Fascist motto, are still guiding principles) but neither countries are nor can be “Communist Fascist” if you knew what Communism and Fascism actually are.
God, Fatherland, family. How terrible.
To the average Western ruling elite, that’s like Holy Water to the Devil…
Socialism degrades to communism and fascism.
A bit like ignorant comments which degrade to moronic and to insane…
BS.
Germany and Europe as a whole –
Not investing in military
Not investing in infrastructure
Not investing in future technology
What are they doing all these years?
They are falling far far behind US and China.
They are trapped in the EU web and can’t escape.
When the goodies are there everybody wants to join EU.
Goodies are now getting less and less.
Time for Europeans to leave the sinking ship.
They spent the last 25 years re-integrating and rebuilding East Germany.
Up until the creation of the Euro, the re-unification was going slowly and poorly and there were massive deficits trying to rebuild and modernize East Germany. After the Euro, Germany stopped running deficits as it was able to export to all the other European nations. In effect, THEY paid for re-unification (assuming they can of course cover those debts – LOL).
Making all the bank via surpluses blinded them to the fact of what was going on could not continue. So they fell behind.
BTW, what happened there isn’t much different than what happened in the USA in the 70s when suddenly Japan and other countries started eating the USAs lunch in cars, steel etc as their own rebuilding after WWII completed.
Winners (including countries) always become complacent and think everything will remain the same forever. Only the losers learn any lessons.
Brexit was a lucky escape, and of course the corruptocrats and traitors indulged in as much spiteful damage as possible, and now these same passive-aggressive sociopaths expect to be able to provoke a war and get a bail out – they deserve to lose in every respect.
If there is an iron dome built, it will cover Washington DC and Maralago Florida.
I live less than 2 miles from MaraLargo. So as long as it extends those 2 miles I’m good with it.
After the fallout, you will be forced to clean Mar Lago Bathrooms for squat.
Squat might be worth more than USD by then.
I’m in Northern VA so if it extends out a bit, I’m also down with it.
Hope so, too, our kids live in Leesburg.
Iron Dome was overwhelmed by Iran last April.
“United We Stand Divided We Fall”
History is repeating.